Monday, May 12, 2008

HP confirms in talks to buy EDS: Dumb deal of the decade?

HP confirms in talks to buy EDS

Hewlett-Packard (HP) has confirmed that it is in talks to buy the information technology provider Electronic Data Systems (EDS).

It followed a report in the Wall Street Journal, which said that HP was close to a deal to buy EDS for between $12bn (£6.1bn) and $13bn.

EDS is a Texas-based information technology services company, of which HP is among the biggest customers.

EDS shares closed up 27.9% while HP shares ended the day down 4.7%.

HP issued a short statement after the market closed.

"HP today confirmed that it is engaged in advanced discussions with Electronic Data Systems Corporation regarding a possible business combination involving the two companies," it said.

'Relatively stagnant'

Some analysts were uncertain about the logic of the potential deal.

"Unless HP has some synergies where they can dramatically impact earnings growth of EDS, I'm not sure why they'd want to buy it," said Jim Huguet of Great Companies in Tampa.

"Earnings growth has averaged 2.8%, so it's not a major earnings growth company."

But others saw the potential deal as a chance for HP to become a big IT services provider.

"EDS has been relatively stagnant over the past few years," said Chad Hersh from Novarica.

"HP has been trying to promote themselves as a major services organization over the past few years.

"This will certainly help them with that."

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