IT giant Hewlett-Packard Co is likely to acquire technology outsourcing company Electronic Data Systems Corporation (EDS) for $12-13 billion.
''We are engaged in advanced discussions with Electronic Data Systems Corporation regarding a possible business combination involving the two companies,'' Hewlett-Packard said in a website release.
''There can be no assurances that an agreement will be reached or that a transaction will be consummated,'' HP added.
The acquisition, if successful, would be HP's biggest since its $19-billion acquisition of Compaq in 2002. It would also make the company a close second to IBM in technology services.
A bigger HP would also be able to compete better against IBM in servicing large clients while at the same time keeping costs in line.
EDS, which competes with both HP and IBM, also competes with Accenture Ltd and Computer Sciences Corp in the United States, as well as India's Infosys Technologies Ltd, Tata Consultancy Services Ltd and Cognizant Technology Solutions Corporation.
EDS shares, which were trading at about half its historical price to earnings ratio, rose nearly 28 per cent following the news, taking its market value to about $12 billion.
HP has been trying to promote itself as a major services provider over the past few years and has long considered an acquisition to beef up its technology services business.
However, there was some skepticism about HP targeting EDS, which in April reported a 62 per cent decline in first quarter profit.
Plano, Texas-based EDS, faced with intense competition, mainly from Indian rivals, had to cut thousands of jobs to generate revenue and boost profits. EDS, however, managed to sign lucrative contracts with the US Navy last year.
In 2000, HP pulled out of talks to buy the consulting business of PricewaterhouseCoopers for as much as $18 billion. IBM acquired that in October 2002 for $3.5 billion
Mark Hurd, the CEO of HP, is following an automation policy to drive profits.
While offshoring reduces costs, automating "eliminates costs," he was quoted as saying in an interview.
EDS will add some 139,000 employees to HP's 159,000 workforce, but only about $22.1 billion in revenue (what it earned in 2007). HP had revenues of $104 billion last year.
EDS is focused on infrastructure services, including data centers, help desks and networks while HP is both into hardware and technology. EDS would also give HP access to a lot of data centers
IBM, which like EDS, provides infrastructure services, is also into management consulting.
Hewlett-Packard is also likely to acquire the British data centres of the BT Group.
BT is in talks to sell its British data centers to Hewlett-Packard for £1.5 billion ($2.9 billion), The Sunday Times reported.
The deal is expected to be finalised in the next few weeks, and see HP take over BT's digital data storage facilities in the UK and receive 400 BT employees.
In return BT would get cash and the global management of HP's voice and data network, which it already runs on a European level.