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HP To Purchase EDS In $13bn Deal

1:50 PM - May 13, 2008 by Jane McEntegart - source: Tom's Hardware

HP has announced that the company will purchase EDS (Electronic Data Systems) for $25 per share.

The $13bn deal has been approved by both companies’ boards of directors, and is expected to close in the second half of this year. When it does, HP estimates it will have roughly a 7 percent share of the technology service market. It will also see HP’s IT services revenue increase by over 50 percent (to more than $38 billion) and will put it second only to IBM (which currently has a 10 percent share of the technology service market). This is a step up from the company’s previous spot in fifth place behind Accenture, Fujitsu, EDS and IBM.

Rumours of the acquisition began to circulate yesterday and by the time Monday evening rolled around, both HP and EDS had released statements confirming that the two were in talks but both refused to elaborate on the issue.

HP plans to establish a new business group, EDS –an HP company, which will be based in Plano, Texas, home of the current EDS headquarters.

The acquisition is the largest people-based business acquisition the industry has seen so it shouldn’t be any surprise to hear that the 210,000 combined employees won’t be 210,000 employees for very long. HP did hint at significant layoffs in overlapping departments but HP Chief Executive, Mark Hurd and EDS Chief Ronald Rittenmeyer declined to estimate how many people would get the axe.

Networkworld.com has a copy of the email Rittenmeyer sent to the masses over at EDS. While there is plenty of reassurance regarding the new company’s location (as previously mentioned it will take up residency in Plano) and that EDS would retain the brand that “you all worked so hard for”, he also mentions that there’s going to be a lot of change, which is sure to panic a few employees. Our advice it to chain yourself to your desk and layoff hanging out around the watercooler.

The deal between EDS and HP is reminiscent of HP’s near-acquisition of PricewaterhouseCoopers’ consulting division in 2000. IBM bought the unit two years later for $3.5 billion.