HP to acquire EDS for $13.9 billion; stock falls 5.5%

HP’s stock fell $2.56 on the news, wiping $12 billion off its market value as analysts questioned the company’s ability to turn EDS around and get its 1% growth and 15% gross margin record of the last five years up to anything like HP’s far more impressive figures. Some even predict that Mark Hurd, HP’s chairman and CEO, could go the same way as Carly Fiorina, whom he succeeded when she took the rap for failing to deliver on the $18.9 billion purchase of Compaq takeover. However, the pair say the deal will close in the second half of 2008 and that the move more than doubles HP’s services revenue, which was $16.6 billion in fiscal 2007. The companies’ collective services businesses at the end of fiscal 2007 were more than $38 billion. Hurd explains that HP will set up a new business group headquartered at EDS’s existing Plano, Texas office and still led by EDS chairman, president and CEO Ronald A. Rittenmeyer. “The combination of HP and EDS will create a leading force in global IT services,” said Hurd. “Together, we will be a stronger business partner, delivering customers the broadest, most competitive portfolio of products and services in the industry.” Certainly, the acquisition fits well with HP’s stated objective of growing its services side. The deal catapults the company to the number two slot, behind IBM, and strengthens its offerings in everything from IT outsourcing – including data centre services, networking services and managed security – to business process outsourcing, CRM, HR and enterprise applications development, modernisation and management.