Hewlett-Packard will become the second-largest technology services company after IBM with a deal announced Tuesday to buy Electronic Data Systems for $13.9 billion.
With revenue of $22.1 billion last fiscal year, EDS of Plano, Texas, gives HP instant scale and a seat at the big table for large contracts.
HP's own services unit brought in $16.6 billion last fiscal year. Together, the two companies will have about 210,000 employees with reach in 80 countries and will be a firm challenger to IBM.
HP's purchase price values EDS stock at $25 per share, a 32.6 percent premium over EDS' closing price of $18.85 on Friday, before news of the merger talks. HP said the agreement has the full backing of both companies' boards and is expected to close by the end of the year.
According to HP, the purchase price includes $13.25 billion paid on 529.9 million units of outstanding common shares, options and restricted stock, as well as $640 million adjusted for the impact of debt, cash and minority interest. HP, headquartered in Palo Alto, plans to create a business group called EDS that will be based in Plano and run by current EDS Chief Executive Officer Ronald Rittenmeyer. The two companies have limited overlap and should enjoy significant synergy, said HP CEO Mark Hurd.
Official press release at EDS:
HP and EDS today announced that they have signed a definitive agreement under which HP will purchase EDS at a price of $25.00 per share, or an enterprise value of approximately $13.9 billion. The terms of the transaction have been unanimously approved by the HP and EDS boards of directors.
The transaction is expected to close in the second half of calendar year 2008 and to more than double HP's services revenue, which amounted to $16.6 billion in fiscal 2007. The companies' collective services businesses, as of the end of each company's 2007 fiscal year, had annual revenues of more than $38 billion and 210,000 employees, doing business in more than 80 countries.
HP intends to establish a new business group, to be branded EDS – an HP company, which will be headquartered at EDS's existing executive offices in Plano, Texas. HP plans that EDS will continue to be led after the deal closes by EDS Chairman, President and Chief Executive Officer Ronald A. Rittenmeyer, who will join HP's executive council and report to Mark Hurd, HP's chairman and chief executive officer. HP anticipates that the transaction will be accretive to fiscal 2009 non-GAAP earnings and accretive to 2010 GAAP earnings. Significant synergies are expected as a result of the combination.
Judith's opinions:
I was minding my own business and twittering (I think that is how you say it) when I noticed a breaking news story from the Wall Street Journal: HP would be acquiring EDS. This is quite a significant transition for HP that will help transform the company into a new position in the market. Now, at this time it isn't official—no conference call yet on my calendar but it certainly looks probable. In fact, Mark Hurd has acknowledged that the companies are talking. I picked up that detail from Larry Dignan and Justin Perlow's blog. So, what does this mean? There are a lot of issues at play. Here are my five 'top ten' thoughts:and a readers comment on his own experience and what this deal can mean to the IT contractors:
The table is already set for an undoubtedly large partnership between HP/EDS and United Airlines. I’ve worked as an IT Contractor at United since 2007; and to see United first acquire EDS’s top exec Keith Halbert, who then acquires his EDS buddy, Samuel Moultrie to fill United’s CIO and CTO positions respectively, it’s clear to me what is going to happen. When you add that to the fact that United has announced, and have already begun actually, cutting 500 IT Contractors (I am one who made the “cut list”), I don’t believe anyone can dispute how this HP/EDS announcement will nicely fit into United’s future.
Full links: News, Judith Hurwitz and EDS Press Release
Wikipedia info on HP and EDS
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