HP Strikes Deal to Buy EDS for $12.6 Bln
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NEW YORK (Reuters)
- Hewlett-Packard Co has struck a deal to buy Electronic Data Systems
Corp for $12.6 billion, seeking to boost its technology services
business to better compete against market leader IBM.
Some Wall Street analysts were critical of the deal, which would be
HP's biggest since its $19 billion purchase of Compaq in 2002. They
said HP was paying a rich premium for a slow-growing business, even if
EDS would vault it to second place behind International Business
Machines Corp in services.
The deal values EDS at $25.00 per share, a 33 percent premium to its
Friday closing price, before reports of talks sent the stock soaring on
Monday. Including debt, the deal's enterprise value was $13.9 billion,
the companies said.
"I would say the deal, in my view, is a little pricey but we'd have
to look at the details," said Jeff Embersits, chief investment officer
of Shareholder Value Management, which owns HP shares.
He said the key was how EDS would be integrated to make it a more profitable business.
"Mark's working with a five-year plan. So this will probably look a
lot smarter in two or three years, but it could be a tough year," he
said about HP Chief Executive Mark Hurd.
HP said it expects the deal to close in the second half of 2008, and
boost its adjusted fiscal 2009 earnings and fiscal 2010 net earnings.
HP also reported better-than-expected preliminary quarterly results
on Tuesday and raised its fiscal 2008 outlook, which it said did not
include any potential impact from the EDS deal.
The acquisition will more than double HP's services revenue, which
amounted to $16.6 billion in fiscal 2007. The combined services
businesses will have annual revenue of more than $38 billion and
210,000 employees, the companies said.
That compared to IBM's $54.1 billion in services revenue last year.
HP shares fell more than 5 percent to $44.30 in early New York Stock
Exchange trading after losing nearly 5 percent on Monday. EDS shares
rose 1.5 percent to $24.45 after gaining nearly 28 percent on Monday.
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