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Acquisition talks between HP and EDS close to fruition

by Scott Bicheno on 12 May 2008, 23:27

Tags: HP (NYSE:HPQ)

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Possible thirteen billion dollar deal

Following informed press speculation led by the Wall Street Journal, Hewlett Packard (HP) confirmed Monday afternoon that it is in “advanced discussions regarding a possible business combination” with Electronic Data Systems (EDS).

The market capitalisation of EDS is currently $12.13 billion, compared to HP’s $114.98 billion. If the deal is completed, it will be HP’s largest acquisition since the bitter purchase of Compaq for $19 billion in May 2002.

EDS shares opened at 18.95 and rose sharply when the news broke, to close up 28 percent at 24.13. In contrast, HP shares opened at 49.39 and dropped five percent to close at 46.65. The explanation appears to market concern that the deal would preclude HP from making less ambitious but possibly more lucrative acquisitions.

Acquiring EDS would increase HP’s presence in the computer services market in a way it could not hope to do organically. IBM was the 2007 leader with more than $54 billion in sales and 7.2 percent of the market. EDS was second with 3 percent and services revenue of $22 billion. HP was fifth with $17.25 billion and 2.3 percent.



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