Banking

HP buys EDS for $13.9 billion, takes on IBM in IT services

Hewlett-Packard made it official on Tuesday: The company is buying Electronic Data eds2.pngSystems for $25 a share. The acquisition will more than double HP's services revenue.

This is a guest post from Larry Dignan. You can read the original article on Larry's blog Between the Lines on TechRepublic's sister site ZDNet.

Hewlett-Packard made it official on Tuesday: The company is buying Electronic Data Systems for $25 a share. The acquisition will more than double HP's services revenue.

Among the details:

  • eds2.pngThe deal is expected to close in the second half of 2008.
  • HP will create a new business group called EDS, an HP company. EDS will remain in Plano, Texas and be lead by current EDS CEO Ronald Rittenmeyer, who will report to HP CEO Mark Hurd.
  • HP will be the second largest IT services provider.
  • HP said the transaction will be accretive to fiscal 2009 non-GAAP earnings and accretive to 2010 GAAP earnings. "Significant synergies are expected as a result of the combination," the company said.
  • HP will pay for EDS with cash and new debt.

Also see: HP's bid for EDS: Opportunity costs loom

"We will be a strong business partner," said HP CEO Mark Hurd, who on a conference call said the deal an important strategically and financially. Hurd also said he was confident that HP could execute on the integration of EDS and deliver savings and efficiencies.

HP and EDS executives played up the complementary nature of the two businesses (click for full slide):

eds1.png

To allay any concerns about the EDS deal, HP upped its second quarter outlook and fiscal 2008 guidance. The company said second quarter earnings were 80 cents a share and 87 cents excluding items. Revenue for the second quarter was $28.3 billion, up from $25.5 billion a year ago. Wall Street was expecting earnings of 84 cents a share, according to Thomson Financial.

For the third quarter, HP projected revenue between $27.3 billion and $27.4 billion with non-GAAP earnings between 82 cents a share and 83 cents a share. GAAP earnings will be 76 cents a share to 77 cents a share. Wall Street was expecting third quarter earnings of 82 cents a share.

HP projected fiscal 2008 revenue between $114.2 billion and $114.4 billion with earnings of $3.30 to $3.34, up from its previous range of $3.26 a share to $3.30. Non-GAAP earnings are projected to bet $3.54 a share to $3.58, up from its $3.50 to $3.54 range. Wall Street was expecting $3.52 a share.

While EDS boosts HP's services business dramatically, the company still has some holes to fill. This chart tells the tale:

eds3.png

Next up for HP may be a few business process outsourcing acquisitions.

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