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Hewlett-Packard Co. said late Monday, May 12, that it was in talks with information technology outsourcing and consulting firm Electronic Data Systems Corp. about a possible merger.
While the Palo Alto, Calif., computer and printer giant stressed there were no assurances of completing any deal, published reports said HP was considering paying $12 billion to $13 billion for EDS. That sent EDS shares up 28% Monday before being halted in the late afternoon.
At its closing price Monday, EDS had a market capitalization of $12.13 billion. The acquisition, if completed, would be the largest deal in the three years Mark Hurd has been HP's chief executive. Such a large deal, however, could be risky, industry analysts say. Integration could prove a challenging and prolonged distraction to HP, but analysts added that if executed properly, an acquisition of that size could drive growth at HP significantly more than any internal initiatives. "When you are a $100 billion a year company, it's hard to grow your business 20%," said Jeff Embersits, an analyst with Shareholder Value Management. "[An EDS acquisition] would be one of the few ways that Mark Hurd could move the needle." Embersits added, however, that EDS' core consulting business could prove more difficult to absorb than many of the software and services businesses HP has acquired recently. "I am not sure what HP would have to gain by acquiring a consulting business, but it could make sense at the right valuation," Embersits said. Ross Perot founded EDS, of Plano, Texas, in 1962. It extensive IT outsourcing services, increasingly to government customers. EDS has itself acquired aggressively. In April it bought British IT security services provider Vistorm Holdings Ltd. for an undisclosed price, and last November it paid $420 million for a majority stake in Saber Holdings Inc. Despite the strong rise in EDS shares on Monday, the company's stock has long been under pressure and, at $24.13, remains well below its 52-week high of $29.13. Last year, EDS profit came under pressure as well, falling to $189 million from $225 million the year before. Analysts said Hurd, who had a long history of turning around troubled companies before joining HP, could also prove the right person to revive EDS. While at HP, Hurd has often expressed a preference for smaller acquisitions, but has made several more sizable ones. In 2006, HP bought enterprise software maker Mercury Interactive Inc. for $4.5 billion. by Andrea OrrCategories Deal Video
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