HP to Buy EDS for $13.9 Billion

In a move to challenge IBM’s dominance in information technology services, Hewlett Packard offered $13.9 billion yesterday for Electronic Data Systems. The offer is $25-a-share, all in cash. It represents a 4% premium over EDS’ closing sharing price on Monday. Both boards have unanimously approved the deal, which should close in the second half of this year.

The Financial Times notes, “HP passed IBM 18 months ago to become the world’s biggest IT company by sales. But IBM retains the top spot in services, with IT outsourcing, design and maintenance of big corporate computer systems, and other IT services accounting for about 56 per cent of its $98.8bn in annual sales last year.”

Mark Hurd, HP’s chief executive, said in the press release announcing the deal, “The combination of HP and EDS will create a leading force in global IT services. Together, we will be a stronger business partner, delivering customers the broadest, most competitive portfolio of products and services in the industry. This reinforces our commitment to help customers manage and transform their technology to achieve better results.”

Ben Worthen, writing for the online version of the Wall Street Journal, cited three reasons that the deal might not work. First, EDS and HP haven’t really done global, and they’re going to have to shift a lot of work overseas – getting that done may be a problem. Second, EDS is no longer independent of any hardware maker, and Mr. Worthen points out that, even if it claims to be vendor agnostic, there will always be a suspicion at the back of a client’s mind. And third, there are the usual culture clashes.

However, the HP-Compaq merger in 2002 faced bigger problems, such that many thought the deal was a bad idea. It has since proved to have been a pretty good move for both. Mr. Hurd has done this before, and HP has gone through such readjustments. Consequently, Mr. Worthen’s concerns, while warranted, are best viewed as challenges likely to be overcome rather than issues that will sink the company.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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