HP said it has signed a definitive agreement to purchase EDS for $13.9 billion ($25 a share) and has won the approval of boards.
The transaction is expected to close in the second half of the year and would more than double HP’s services revenue, which totaled $16.6 billion in fiscal 2007. The companies’ collective services businesses, as of the end of each company’s 2007 fiscal year, had revenues of more than $38 billion. Together they employ 210,000 employees in more than 80 countries.
HP intends to establish a new business group to be branded EDS—an HP company, which will be headquartered at EDS’ existing executive offices in Plano, TX. EDS will continue to be led by its chairman and CEO Ronald A. Rittenmeyer, who will join HP’s executive council and report to Mark Hurd, HP’s chairman and CEO.
Although both companies provide HRO services to global clients, they are considered minor players in the enterprise market. HP performs some payroll services for clients but have not engaged in any enterprise, comprehensive HRO contracts. EDS, through its ExcellerateHRO joint venture with Towers Perrin, provides outsourced HR services to a number of clients around the world, including a number of public sector clients. It’s unclear how the transaction will affect their respective services.
HP anticipates that 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 combination of HP and EDS will create a leading force in global IT services," said Hurd. "Together, we will be a stronger business partner, delivering customers the broadest, most competitive portfolio of products and services in the industry. This reinforces our commitment to help customers manage and transform their technology to achieve better results."
Rittenmeyer added, "First and foremost, this is a great transaction for our stockholders, providing tremendous value in the form of a significant premium to our stock price. It’s also beneficial to our customers, as the combination of our two global companies and the collective skills of our employees will drive innovation and enhance value for them in a wide range of industries. In addition, our Agility Alliance will be significantly strengthened."
