HP said on Tuesday that it will acquire computer services firm EDS for $25 (£13) per share, or $13.9bn, in a deal intended to boost HP's services revenue.
On Monday night, HP confirmed that the two companies were in talks, following news reports earlier in the day. The deal will create a computer services giant intended to rival IBM in the market for serving business customers.
HP said the deal, which has been unanimously approved by the HP and EDS boards of directors, will close in the second half of the year. HP expects that the addition of EDS will more than double HP's services revenue of $16.6bn in fiscal 2007. At the end of 2007, HP and EDS had a collective services revenue of more than $38bn and 210,000 employees, doing business in more than 80 countries, HP said.
HP said it will establish a new business group, called "EDS — an HP company", which will be headquartered at EDS's existing executive offices in Plano, Texas.
EDS will continue to be led by EDS chairman, president and chief executive Ronald A Rittenmeyer, who will join HP's executive council and report to Mark Hurd, HP's chairman and chief executive, the company said. All of HP's existing technology services will remain under its Technology Services Group, reporting to its current director Ann Livermore, with the exception of outsourcing, which will now fall under Rittenmeyer's responsibility at EDS.
This is not the first time HP has made an attempt at buying a major consulting firm as, in 2000, HP was in talks to acquire PricewaterhouseCoopers (PWC). The acquisition was the first big move by former chief executive Carly Fiorina. However, a significant earnings shortfall in the autumn of 2000, along with significant hand-wringing on Wall Street, prompted HP to drop the idea.
IBM acquired PWC for $3.5bn two years later, while HP took a dramatically different strategy and acquired PC maker Compaq. With EDS, HP now trails only IBM in the lucrative services sector.
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"We're running the playbook we know how to run very well," Hurd told analysts during a conference call this morning. "We know how to get significant leverage out of our scale. We spent double-digit thousands of hours on the due diligence and planning. This thing [EDS] is very attractive. We didn't bake in a lot of revenue synergies but they are there."
The two already share some of the same clients but overlap is "few and far between", Rittenmeyer said. He also hinted at job cuts. "We are continuing to streamline our workforce and there are going to be some changes. We've already been doing that this year and have more planned for this year."
HP, which was originally due to report its second-quarter earnings on Thursday, announced preliminary results on Tuesday. Revenue earned was $28.3bn, or GAAP diluted earnings per share of 80 cents (41 pence). That compares with $25.5bn in the same quarter a year ago, or GAAP diluted earnings per share of 65 cents.
