HP bidding for EDS; Deal would ramp up services

HP bidding for EDS; Deal would ramp up services

Summary: Updated: Hewlett-Packard is in talks to acquire Electronic Data Systems in a move that would reshape the technology services and outsourcing market.In a statement Monday, HP and EDS confirmed the talks, first reported by the Wall Street Journal:HP said:HP today confirmed that it is engaged in advanced discussions with Electronic Data Systems Corporation regarding a possible business combination involving the two companies.

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TOPICS: CXO, Hewlett-Packard
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Updated: Hewlett-Packard is in talks to acquire Electronic Data Systems in a move that would reshape the technology services and outsourcing market.

In a statement Monday, HP and EDS confirmed the talks, first reported by the Wall Street Journal:

HP said:

HP today confirmed that it is engaged in advanced discussions with Electronic Data Systems Corporation regarding a possible business combination involving the two companies.

There can be no assurances that an agreement will be reached or that a transaction will be consummated. HP does not intend to comment further until an agreement is reached or discussions are terminated.

hurd.pngThe deal, which reportedly be valued at about $12 billion to $13 billion, would instantly transform HP into an IT services powerhouse able to rival IBM. Buying EDS would also be HP's largest purchase under CEO Mark Hurd's tenure. A purchase of EDS would be the largest acquisition since HP bought Compaq for $20 billion in 2002.

If HP were to acquire EDS it would add $22 billion to revenue a year. For 2007, EDS reported earnings of $716 million. More importantly, EDS would bring to HP a series of long-term IT services contracts that Hurd could use to see hardware and software. For 2007, EDS (all resources) reported total contract value of new contract signings (TCV) of $19.5 billion, down from $26.5 billion in 2006. The 2006 figure included contract renewals with General Motors and the U.S. Navy totaling $7.5 billion.

In other words, HP's business model would look a lot like IBM's.

Also see: HP launches data center as a service; The cloud meets outsourcing

For the fiscal year ended Oct. 31, HP had revenue of $104.3 billion, up from $91.6 billion in 2006. Net income for 2007 was $7.3 billion, up from $6.2 billion. For 2007, HP had services revenue of $16.6 billion with earnings from operations of $1.83 billion.

Here's Citigroup analyst Richard Gardner's take:

The deal makes strategic sense. Outsourcing's  long-term  relationships with large customers create potential revenue synergies. Operating more mission-critical datacenters should also give  HP an edge in new-product development. HP likely plans to apply its infrastructure consolidation/modernization, automation,  and   virtualization   skills  to EDS' infrastructure to boost its margins.

If this deal happens, more consolidation in the services industry is likely. Unisys would likely be a target just for its government contracts. Accenture could either go shopping or also become a target. BearingPoint could be a decent takeover. Meanwhile, Indian outsourcing firms such as Wipro and Infosys could also be in play as beefed up services giants eye low-cost delivery models.

Topics: CXO, Hewlett-Packard

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5 comments
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  • This is big news.

    <a href="http://www.eliteavi.com">this is big news. EDS is here in Plano where I live and I hope if this transaction goes threw there is no layoffs</a>
    eliteavi
  • RE: HP bidding for EDS; Deal would ramp up services

    <a href="http://www.eliteavi.com">this is big news. EDS is here in Plano where I live and I hope if this transaction goes threw there is no layoffs</a>
    eliteavi
  • RE: HP bidding for EDS; Deal would ramp up services

    What irony! HP won the GM contract from EDS and has been struggling to deliver what EDS was doing. Now they buy us up? Be kind to your friends in the swamp for a duck may be somebody's mother, and an HP tech might be your brother...
    MetaPhiz
    • correction

      EDS won 80% of GM contract, I cannot even remember what
      HP won, but it was single digit % - third after IBM/ACS
      dinosaur_z
  • RE: HP bidding for EDS; Deal would ramp up services

    The synergies of a merger like this come from the layoffs. There's no way this can be done without significant head count reduction. Corporate headquarters is where a lot of duplicate functions exist. Plano will be hit hard.
    BladeGuy