HEWLETT-PACKARD Co, the world's biggest personal-computer maker, has agreed to buy Electronic Data Systems Corp for US$13.9 billion to more than double its sales from computer services. The company also raised its full-year profit and sales forecasts for the year.
Hewlett-Packard will pay US$25 a share, or 33 percent more than Electronic Data's closing price on May 9, before the companies disclosed they were in talks. The acquisition will start adding to earnings, excluding some costs, as of fiscal 2009, Hewlett-Packard said yesterday in a statement reported by Bloomberg News.
The purchase is Hewlett-Packard's largest since the US$18.9 billion takeover of Compaq Computer Corp, led by chief executive officer Mark Hurd's predecessor, Carly Fiorina. Combining with Electronic Data, founded by H. Ross Perot in 1962 with US$1,000, would help Hurd more than double revenue from services as PC shipment growth slows worldwide.
This is "a big jump start to HP's outsourcing business," Crawford Del Prete, an analyst with IDC in Framingham, Massachusetts, told Bloomberg Television.
The company said yesterday that second-quarter profit probably amounted to 87 US cents a share, excluding some costs, beating the average 84-cent estimate of analysts surveyed by Bloomberg. Sales advanced to US$28.3 billion, also topping projections. The company said sales will amount to at least US$114.2 billion, compared with at least US$113.5 billion.
The transaction should close in the second half of 2008, the companies said. Hewlett-Packard stock fell 2.6 percent to US$45.61 in trading before exchanges opened after closing at US$46.83 on Monday on the New York Stock Exchange. EDS, based in Plano, Texas, rose 8 cents to US$24.13 after advancing 28 percent yesterday in regular trading.
"The reaction may be a bit negative because EDS has been struggling for a number of years," said Chuck Jones, who helps oversee US$17 billion in assets, including Hewlett-Packard shares, at Atlantic Trust Private Wealth Management in San Francisco. "You've got to feel comfortable that he's thought this out well enough to do it. I believe in Mark Hurd."
The acquisition will more than double Hewlett-Packard's annual sales in its services unit to almost US$40 billion.