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HP to Buy EDS

Written By: Nergis Mazid
Published On: May 13 2008

A definitive agreement was reached between HP and EDS today where HP will purchase the global outsourcing company for $13.9 billion ($25 a share).

EDS is a global technology services company centering on information outsourcing. It serves both the private and public sectors, with core areas including manufacturing, financial services, healthcare, communications, energy, transportation, and consumer and retail industries.

HP is one of the world's largest technology companies with revenues totaling $107.7 billion for the four fiscal quarters ending Jan. 31, 2008.

A brief look at the wires shows that analysts see this as a positive step for HP in its bid to move beyond printers. To compete with IBM, HP has been trying to break into enterprise consulting for some time now. It even went so far as to attempt to buy PricewaterhouseCooper's consulting division. Talks fell through and it was purchased by IBM instead. HP will also gain is better access to US government contracts. EDS is one of the top 10 government IT contractors securing over $2.5 billion in 2007 (compare this to HP's $500 million).

However, HP investors weren't so sure as HP's stock dropped 5% (closed at $46.83), but this is likely due to the scale of the deal, versus HP's wisdom at entering the services domain. With every acquisition there are the challenges of company cultures and layoffs (yes, it's an ugly word during this economic downturn in the
US, but it is a reality), while keeping an eye on the competition. Areas such as software development and sales will likely remain in tact.

Interesting tidbit: Ross Perot (yup the rich bloke who sponsored a raid at an Iranian prison to rescue two of his employees, and ran as an independent in the US elections in 1992 and 1996) started EDS in 1962 and eventually sold his shares to General Motors for $2.5 billion in 1984) ... did I mention that he used to work for IBM?
 
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