Tuesday, May 13, 2008

HP to buy EDS

Hewlett Packard (HP) announced today (leaked out yesterday afternoon) that they have struck a deal to purchase Electronic Data Systems (EDS) for 13.9 billion to strength it's service business. Here are details:

The companies' collective services businesses had combined revenue of more than $38 billion and 210,000 employees in fiscal 2007. The deal will more than double HP's services revenue, which accounted for $16.6 billion of the company's $104 billion in revenue in fiscal 2007.

Palo Alto, Calif.-based HP (NYSE: HPQ) is buying EDS for $25 per share, which EDS stockholders will receive for each share of common stock they hold at the closing of the merger, expected in the second half of this calendar year.

HP (NYSE: HPQ) said it intends to establish a new business group called EDS- an HP company, which will be based at EDS's existing headquarters in Plano, Texas. EDS Chairman, President and CEO Ronald Rittenmeyer will continue to lead EDS's operations following the deal's closing. EDS is a provider of consulting and technology outsourcing services.

So is this a good deal for shareholders? It depends who you are holding. EDS shareholders are probably getting the better deal, since the company has been pretty stagnate in a growing industry. Here is the prior year chart for EDS (it is pretty ugly). If HP has the corporate leadership to turn around the struggling service company than HP shareholders may see some benefit down the road.