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HP to buy EDS for $12.6 billion

SAN FRANCISCO: Hewlett-Packard Co. on Tuesday agreed to buy Electronic Data Systems Corp. for about $12.6 billion (euro8.14 billion) in cash to build a technology-services company that could challenge IBM.

The companies said their boards on Tuesday had unanimously approved the deal, in which EDS shareholders would get $25 per share. That is a premium of almost 25 per cent over what EDS had been trading on Friday. Word of the talks emerged on Monday.

It would be HP’s biggest deal in six years.

HP is the world’s largest maker of personal computers, while Texas-based EDS provides technology services to the governments and companies around the world.

The sale is expected to close in the second half of this year and more than double HP’s revenue from services, which was $16.6 billion (euro10.73 billion) in 2007. EDS had $22.13 billion in revenue last year.

Their combined services business would have 210,000 employees — although some analysts expect HP would trim jobs — and operations in more than 80 countries.

HP said the business would be based at EDS’ headquarters in Plano, Texas, and led by EDS chairman and Chief Executive Ronald A. Rittenmeyer.

HP said it expected the deal would produce “significant” cost savings and add to earnings by next year.

Palo Alto-based HP and EDS had said on Monday that they were in “advanced discussions” about a possible combination without providing additional details.

In Tuesday’s announcement, the companies said the deal would have an enterprise value of $13.9 billion without defining what that included. If the deal is completed, it would be HP’s biggest acquisition since it bought Compaq Computer Corp. for $19 billion (euro12.28 billion) in 2002. That acquisition paved the way for HP to supplant Dell . as the world’s largest PC maker.

Buying EDS would give HP more tools to challenge IBM Corp. in the lucrative technology services field. HP already has replaced IBM as the world’s largest technology company, based on revenue.

The demand for data management and technology consulting services has steadily grown during the past two decades as the automation of corporate America and the rise of the Internet prompted more businesses to hire contractors to help run their computer software and hardware. — AP

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