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.