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Hewlett-Packard CEO Mark Hurd
Hewlett-Packard Acquires Electronic Data Systems
HP’s acquisition of the technology services giant puts the company in position to challenge IBM’s control of the computer-services market.
30-Second Summary
With the completion of the $13.9 billion deal, Hewlett-Packard becomes the world’s second-largest provider of technology services, trailing only IBM.
The computer and printer specialist had been looking to expand its services business, a lucrative global market that is predicted to grow eight-percent a year for at least the next five years. The market has been controlled by IBM, Computer Sciences Corp. and EDS.
HP is more than doubling its services business revenue, adding EDS’s $22.1 billion 2007 revenue to its $16.6 billion, but it is still well short of IBM’s $54 billion.
Analysts feel that the acquisition is a bold, but risky move for HP. Although it immediately becomes a force in the IT services market, it will also face problems integrating the operations-based EDS into its product-based company.
“On paper an HP-EDS combination looks workable,” say analysts at the Ovum Group, “But in practice it could prove anything but.”
News of the acquisition caused HP’s stock to tumble, as analysts thought HP paid too much.
The acquisition is HP’s first since buying Compaq for $19 billion in 2002. HP had difficulty integrating Compaq, and CEO Carly Fiorina lost her job over it. However, it helped HP overcome rival Dell in the PC market.
HP hopes that history will repeat itself, and the EDS acquisition will help it overcome IBM in the services market.
“It’s a great move for them,” says ING Groep executive Minaz Sarangi, “They’ll be much more of a competitor to IBM now.”
The computer and printer specialist had been looking to expand its services business, a lucrative global market that is predicted to grow eight-percent a year for at least the next five years. The market has been controlled by IBM, Computer Sciences Corp. and EDS.
HP is more than doubling its services business revenue, adding EDS’s $22.1 billion 2007 revenue to its $16.6 billion, but it is still well short of IBM’s $54 billion.
Analysts feel that the acquisition is a bold, but risky move for HP. Although it immediately becomes a force in the IT services market, it will also face problems integrating the operations-based EDS into its product-based company.
“On paper an HP-EDS combination looks workable,” say analysts at the Ovum Group, “But in practice it could prove anything but.”
News of the acquisition caused HP’s stock to tumble, as analysts thought HP paid too much.
The acquisition is HP’s first since buying Compaq for $19 billion in 2002. HP had difficulty integrating Compaq, and CEO Carly Fiorina lost her job over it. However, it helped HP overcome rival Dell in the PC market.
HP hopes that history will repeat itself, and the EDS acquisition will help it overcome IBM in the services market.
“It’s a great move for them,” says ING Groep executive Minaz Sarangi, “They’ll be much more of a competitor to IBM now.”
Headline Links: ‘HP to buy EDS for $13.9 billion’
The cash deal, which will make EDS a division of HP, was approved by both company’s boards on Tuesday. HP’s CEO Mark Hurd declared that the acquisition would make HP “a leading force in the global IT industry.”
Source: San Jose Mercury News
InfoWorld answers common questions about the deal, including how the companies overlap, how they will integrate and how the acquisition can be a success.
Source: InfoWorld
Reactions: HP’s stock drops, ESD’s increases
HP dropped 6.5-percent during midday trading on Tuesday because analysts thought the $13.9 price tag was “surprisingly high.” EDS rose 1.5 percent a day after increasing 27.9 percent when news of the acquisition first broke.
Source: Forbes
Opinion & Analysis: How does the move affect HP?
HP’s 2002 purchase of rival computer company Compaq was initially considered a failure, as HP struggled to manage the large company and quarterly results were poor. In retrospect, the move helped HP surpass Dell in the PC market that it now dominates, and HP is hoping that the EDS acquisition will have a similar effect in the services market.
Source: CNN Money
Many analysts HP paid too much for EDS, arguing that there were smaller companies that offer the same benefits of EDS, but at a smaller price and more manageable size. Phil Morris of EquaTerra Europe believes that EDS “does not take them forward far enough to warrant the purchase price. Whilst there are clear plusses, on balance I do not believe EDS is the right target for HP.”
Source: ComputerworldUK
The Wall Street Journal’s Ben Worthen looks at three problems HP faces from the acquisition. He believes that HP must outsource more of its work, integrate two companies with different cultures and hope that customers still trust EDS’ software and hardware recommendations.
Source: Wall Street Journal
Background: Previous acquisition attempt
HP has controlled the personal computer and printers markets, but it sits in fifth place in the lucrative computer services market. Acquiring EDS immediately vaults the company into second. HP tried to make a similar acquisition in 2000, when it attempted to buy PricewaterhouseCoopers. The deal fell through and PwC was purchased by IBM soon after, leaving HP without a major share in the services market.
Source: Wall Street Journal
Reference: The history of HP and EDS
Hewlett-Packard was founded in 1939 by Stanford graduates Bill Hewlett and Dave Packard, who operated out of their garage. It grew into a large electronics company and was a pioneer in creating the personal computer and printers. Over the past decade, it has become the market leader in personal computers and printers.
Source: HP.com
Electronic Data Systems was founded in 1962 by former IBM salesman and future Presidential candidate H. Ross Perot. It provided electronic data processing for large corporations, and soon grew into a billion-dollar company. The company’s growth has been stagnant over the past few years, making it an acquisition target.
Source: Wall Street Journal
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