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Thu, May 15, 2008 - Page 10 News List

HP-EDS deal to challenge Big Blue

‘BOLD MOVE’The US$13.9 billion purchase of Electronic Data Systems, set to close by year’s end, more than doubles Hewlett-Packard’s services outsourcing business


Hewlett-Packard Co (HP) on Tuesday revealed a US$13.9 billion deal to buy Electronic Data Systems (EDS) in a tie-up that creates a global powerhouse in computer services to compete against IBM.

World leading computer maker HP said it would buy Texas-based business services outsourcing giant EDS for US$25 a share in cash, representing a 32.6 percent premium for EDS shares.

“The combination of HP and EDS will create a leading force in global IT services,” HP chief executive Mark Hurd said. “Together, we will be a stronger business partner, delivering customers the broadest, most competitive portfolio of products and services in the industry.”

California-based HP’s massive data centers and experience in business computing hardware should mesh well with the expertise EDS has in outsourcing technical services for companies, analysts said.

“It is a very bold move but I wouldn’t say it’s a super surprising move given what HP’s core strengths are,” said Crawford Del Prete, IDC executive vice president of worldwide research.

“They complement each other very well. There is a lot of synergy that can go on,” he said.

Analysts at Briefing.com said: “Adding EDS would expand HP’s service offering and also increase its market share in the industry, helping it better compete with industry heavyweight IBM.”

HP expects to close the deal by the end of the year.

The acquisition more than doubles HP’s outsourcing services business, which will be aggressively marketed particularly in Europe and the Americas, Hurd said during a conference call with news reporters.

HP’s outsourcing resources will be folded into EDS and the new entity will be run by EDS chief executive Ronald Rittenmeyer.

“It’s too early to tell about job cuts, but we are clearly going to look at some synergies,” Rittenmeyer said during the conference call. “There obviously are going to be some changes. We are continuing to streamline our workforce at EDS and to look at automation.”

Rittenmeyer said the scale gained with HP would let EDS take on large government, healthcare, manufacturing and financial services contracts.

“HP did an important deal in one stroke of a pen and a lot of money is changing hands,” Del Prete said. “HP was struggling in the application outsourcing business and that changes dramatically in this EDS deal. HP becomes a very major player.”

The implications are “only positive” for EDS subsidiaries in India, Rittenmeyer said.

“We feel really good about the opportunity for our people in India,” Hurd said. “It’s a very important country for both of us and we feel very excited about it.”

EDS says on its Web site that it founded the information technology outsourcing industry in 1962 and is now a multibillion-dollar company handling services for banks, hospitals, shops, energy producers and other firms.

EDS handles services ranging from call-in centers and financial transaction processing to “desktop outsourcing” in which EDS provides firms with employee computers and refreshes models every few years.

“That is a big business for EDS,” Del Prete said of desktop outsourcing. “And HP is in the PC business. It’s a marriage made in heaven.”

HP is expected to impose its fiscal discipline on EDS and consolidate the outsourcing firm’s estimated 180 data service centers worldwide.

The companies’ combined services businesses had annual revenue of more than US$38 billion at the end of the fiscal last year.

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