HP makes $14 Bn acquisition

Date:   Monday , June 09, 2008

Hewlett-Packard (HP) is rolling the dice to set the deal with EDS, an IT outsourcer, for $14 billion, over $25 a share. The deal that has already been signed by the board of directors is expected to close in the second half of this year. The move will help HP more than double its services revenue.

Ben Pring, an analyst at Gartner, the market research group, finds that the deal would be HPís biggest acquisition since its controversial $19 billion merger with Compaq, a rival PC maker, in 2002. Through this deal HP expects to gain by combining its $16.6 billion services business with that of EDS which was founded in 1962 by the U.S. billionaire Ross Perot. EDS makes money by managing other companiesí computer systems and performing their computing tasks, like payroll management and order processing.

Under the deal, HP will fold much of its $16.6 billion services business into EDSís, which will continue to operate from its Plano, Texas headquarters. Ron Rittenmeyer, EDS Chairman and CEO, will run the business, reporting directly to HP CEO Mark Hurd. Moreover, HP can utilize the huge talent pool of EDS.

Together, HP and EDS last year accounted for five percent of global services sales. The Gartner figure states that the deal would catapult HP near the top of the space that was worth $748 billion in 2007. IBM led the market with about $ 54billion in revenue, followed by EDS with $22 billion. HP was in the fifth place with revenue of $17 billion, behind Accenture and Fujitsu.