Hewlett-Packard (HP) has confirmed it is to acquire IT
services company EDS for £7.13bn in a deal that is expected to be
finalised in the second half of the year.
It is understood that it will be business as usual until then
for both companies, which will continue to compete until the
transaction is complete.
The deal has been approved by both company boards and will
potentially create the world's biggest IT hardware and services
company, although the EDS brand will remain.
EDS chief executive and chairman, Ron Rittenmeyer, will continue
in his role at EDS after it becomes an HP company, reporting to HP
chief executive, Mark Hurd.
Hurd said, "The combination of HP and EDS will create a leading
force in global IT services, Together, we will be a stronger
business partner, delivering customers the broadest, most
competitive portfolio of products and services in the
industry."
Rittenmeyer said, "This is a great transaction for our
stockholders, providing tremendous value in the form of a
significant premium to our stock price. It is 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."
The deal is expected to strengthen HP's competitive position
against IBM, and EDS will benefit from HP's hardware offerings and
research and development budget.
Phil Morris, managing director at outsourcing advisor Equiterra,
said that the deal may give IT directors with contracts with EDS
leverage to negotiate better deals.
"Although businesses would naturally feel vulnerable if their
outsourcer is acquired, most outsourcing contracts have a clause
covering change of ownership, which gives CIOs a lot more
power."
He urged IT directors to look at their EDS contracts and
evaluate whether there was an opportunity to do something different
with the contract or look at adding additional services.
Phil Godling, principal analyst at Ovum, said HP has been
attempting to build a significant services businesses for several
years.
"It has large outsourcing agreements with oil company Chevron
and Proctor & Gamble, and Hurd is very serious about building a
services business in HP," he said.
But according to Godling, neither HP nor EDS had large enough
consulting practices to offer a viable alternative to companies
like IBM Global Services and Accenture, which are able to offer
CIOs business transformation services designed to boost operational
efficiency.
Instead, he said the combined company risks becoming a large IT
infrastructure outsourcer, which may not be able to deliver the
higher value business transformation services IT directors would
like.