HP snaps at IBM's heels with EDS merger
15 May 2008
HP has already overhauled the venerable International Business Machines (IBM) in total revenue this year to become the largest computer systems and services company in the world. By Sourya Biswas
Hewlett-Packard (HP) is acquiring Electronic Data Systems (EDS) for a whopping $13.9 billion, or $25 per share. This represents a generous 32.6-per cent premium over EDS' closing price of $18.85 on Friday, before talks of the acquisition became public. (See: HP set to acquire EDS for over $12 billion)
The multi-billion-dollar-question now is what is HP is getting for its big bucks?
HP has already overhauled the venerable International Business Machines (IBM) in total revenue this year to become the largest computer systems and services company in the world. Now, with this acquisition, it proposes to challenge Big Blue's pre-eminent position in IT services specifically while doubling its revenue from this stream.
This deal catapults HP from its current fifth position in IT services to the runner-up spot just behind IBM. Moreover, it becomes twice as large as the next player in the game, Accenture.
| The big boys of IT services: revenues decrease from left to right | |||||
| Company | IBM | HP | EDS | Accenture | Fujitsu |
| Founded: Date | 1889 | 1939 | 1962 | 1989 | 1935 |
| Headquarters | Armonk, New York, US | Palo Alto, California, US | Plano, Texas, US | Hamilton, Bermuda | Tokyo, Japan |
| Chief executive | Samuel J Palmisano | Mark V Hurd | Ronald A Rittenmeyer | William D Green | Hiroaki Kurokawa |
| Revenue (total) | $98.8 billion | $104.3 billion | $22.1 billion | $21.4 billion | $43.2 billion |
| Revenue (IT services) | $54.0 billion | $17.2 billion | $22.1 billion | $21.4 billion | $18.6 billion |
| Revenue (other) | $44.8 billion | $87.1 billion | - | - | $24.6 billion |
| Net income | $10.8 billion | $7.3 billion | $0.72 billion | $1.3 billion | $0.48 billion |
| Employees | 386,000 | 309,000 | 136,000 | 178,000 | 161,000 |
With annual revenue of $22.1 billion last fiscal year, EDS gives HP instant scale and a chance to win large contracts. HP's own services unit brought in $17.2 billion last fiscal year. Together, the two companies will have about 210,000 employees in IT services with reach in 80 countries, and will be a firm challenger to IBM.
This move by HP can be considered as a culmination of its unsuccessful efforts to buy the consulting arm of PricewaterhouseCoopers way back in 2000. Unfortunately for HP, IBM acquired the company two years after its efforts came to a naught.
