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HP closes $13.9 billion EDS deal

by Hugh Bicheno on 13 May 2008, 16:52

Tags: HP (NYSE:HPQ)

Quick Link: HEXUS.net/qam64

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To give IBM a run for its services money

As widely predicted yesterday, HP and EDS today announced that they have signed a definitive agreement by which HP will purchase EDS at $25.00 per share, for a total of about $13.9 billion. The price represents a 32.5 percent premium on EDS’s closing price of $18.86 last Friday.

HP shares opened down and fell a further 3 percent during the day. The main concern of market analysts appears to be that HP, with 172,000 employees, is acquiring an indigestibly large (140,000), mainly US-based, EDS workforce, putting it at a disadvantage with overseas based competitors.

The acquisition moves HP into second place in IT services, with 5.3 percent, behind IBM’s 7.2 percent. IBM’s service margins are around ten percent, with HP one or two percent higher, but that edge will be eroded by EDS operating margins of around 6 percent.

The transaction will close in the second half of calendar year 2008. Renamed “EDS - an HP company,” the new acquisition will continue to be run by EDS Chairman, President and CEO Ronald Rittenmeyer, who will join HP’s executive council and report to HP Chairman and CEO Mark Hurd.

HP also announced fiscal second-quarter earnings of 80 cents a share on higher-than-predicted revenue of $28.3 billion. The full quarterly report will be published on 20 May. For the year, HP expects to earn $3.30 to $3.34 a share, also higher than predicted.



HEXUS Forums :: 6 Comments

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Ah…this would be Electronic Disasters Supplied, would it? The bunch that have made such a rip-roaring success of all those public sector contracts from uk.gov, yes? Ah well, s'long, HP, it was nice knowing you… :P
1 of my friends works for EDS in the MOD payroll section, interesting stories …
Gotta love when big companies throw money around.

Is it wrong not to have heard of EDS before now?
nichomach
Ah…this would be Electronic Disasters Supplied, would it? The bunch that have made such a rip-roaring success of all those public sector contracts from uk.gov, yes? Ah well, s'long, HP, it was nice knowing you… :P

When the government push EDS to implement a system far before its ready or been properly tested then disasters do happen. It really isnt 100% EDS to blame on the failure of some government contracts.
digit
When the government push EDS to implement a system far before its ready or been properly tested then disasters do happen. It really isnt 100% EDS to blame on the failure of some government contracts.

As far as I've been able to tell it's been the case that EDS have overpromised and underdelivered - the proverbial moon on a stick. They've bid on contracts that they couldn't possibly deliver within budget or the timeframes available (as seems to be the case with most PFI contracts, I've been part of a few myself unfortunately) and when it comes to delivery there is often a massive scope-slip and not enough management of the project to keep it on track, coupled with a lack of resource due to trying to deliver as cheaply as possible.

My brother in law used to work for EDS, and the horror stories (well, he didn't think they were that bad, but a regular day at work involved lots of stuff that would not be allowed on my watch…) were a real eye opener.

I can only imagine that Mark Hurd is trying to do a Carly Fiorina, EDS is certainly a step in the right direction.