$13.9 B buyout will create 'EDS: An HP Company'

Hewlett-Packard plans to buy technology services giant EDS for $13.9 billion, officials confirmed today, potentially bolstering its position versus IBM in the business services arena, particularly with government and health care.

During a Webcast for reporters this morning, HP CEO Mark Hurd estimated that the resulting HP business unit -- to be known as "EDS: An HP Company" -- will double the size of HP's current services business to $38 billion. "Today's announcement is compelling financially," according to the HP CEO.

Hurd also said he envisions only a positive impact on the many smaller companies that provide services for HP as systems integrators, value-added resellers (VARs), and other channel partners.

"I don't see anything but goodness coming out of there," he told reporters today. "What's good for HP [is] good for the channel."

Under an upcoming reorganization, employees of the existing HP Services business will be transitioned to the new EDS which will focus mainly on outsourcing, according to Hurd. Ron Rittenmeyer, who currently heads up EDS, will be in charge of HP's new business entity.

Meanwhile, HP's Technology Services Group (TSG) -- a business unit focused on storage, servers, and associated software and services -- will remain intact. TSG staff will continue to report to Ann Livermore, TSG's current chief, Hurd said.

Rittenmeyer told reporters that he foresees few overlaps between EDS and the existing HP Services, since employees of the two businesses tend to be working in "different spaces." Over the years, EDS has developed strong specialties in technology services for vertical markets such as government, manufacturing, and health care.

However, he indicated that job layoffs are on the horizon -- not unusual in the game of mergers and acquisitions. But, he said, the job cuts has been on EDS's agenda, anyway. EDS has been "continuing to streamline the work force" and "to look at automation," Rittenmeyer elaborated, adding that HP has what he called a "proven track record" of integrating acquired companies well.

In a written statement issued yesterday, HP corroborated industry rumors that the company has been in talks with EDS about a possible "business combination."
Then, in another written statement this morning, HP announced the planned $13.9 billion acquisition, along with intentions to hold separate webcasts for journalists and analysts shortly afterward.

Also this morning, HP released preliminary second quarter results -- to be discussed with financial analysts in a third conference call today -- showing preliminary GAAP diluted earnings per share of 80 cents per share, in comparison with 60 cents per share for the same quarter last year. HP issued the preliminary financial results to "facilitate communications" with analysts about the merger with EDS, HP officials said.