HP seals $13.9bn deal for EDS

HP has agreed a $13.9bn deal to create one of the world's largest service providers by buying EDS.

The buyout will see HP challenge rival IBM at the top of the global outsourcing market and is highly unlikely to be scuppered by regulatory concerns, according to analyst Gartner.

The deal is expected to close in the second half of 2008 and will more than double HP's services revenue, which amounted to $16.6bn in fiscal year 2007.

The two companies collective services businesses, as of the end of each company's 2007 fiscal year, had annual revenues of more than $38bn and 210,000 employees, doing business in more than 80 countries.

The deal will strengthen HP's services business across the gamut of IT and business process outsourcing sectors, serving a wide range of public and private companies.

Mark Hurd, HP's chairman and CEO, said in a statement: "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. This reinforces our commitment to help customers manage and transform their technology to achieve better results."

Gartner said the deal would leave IBM and HP as $40bn behemoths at the head of the services market, far in front of the $20bn Accenture in third place.

Outsourcing advisor EquaTerra also warned that the culture clash between the two companies would prove a consolidation headache and that more than $12bn was a "very high price" for EDS.

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Ben Pring, research VP for IT service practice at Gartner, said: "The services market is very fragmented among a lot of small companies so it would be hard for the regulator to argue it was too large a consolidation. It would clearly create two titans at the head of the market that over the coming years would duke it out over every big outsourcing deal."

Phil Morris, MD of EquaTerra for Europe and Asia, said: "This will turn them [HP] into the outsourcing company that they always wanted to be. But it is combining two vastly different cultures, HP is a famously internally protective company while the way EDS acts and measures people in fundamentally different."

HP intends to establish a new business group, to be branded 'EDS - an HP company', which will be headquartered at EDS's existing executive offices in Plano, Texas.

HP plans that EDS will continue to be led after the deal closes by EDS chairman, president and CEO Ronald Rittenmeyer, who will join HP's executive council and report to Hurd.

EDS stockholders will receive $25 for each share and the acquisition is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of EDS's stockholders.