Hewlett-Packard and EDS have confirmed that they are in advanced discussions regarding a possible business combination.
The two companies released virtually identical press releases saying there was no guarantee a deal would be consummated, and that there would be no further comment until an agreement is reached or discussions are terminated. EDS’s share price rose 28% on the news.
Adding EDS, which had revenue of $22.1bn in 2007, would more than double the size of HP’s services business, which has $16.6bn in revenue. The resulting $39bn services operation would still be smaller than IBM Global Services, which has revenue of $54bn, but would bridge the gap substantially and establish the merged entity as the clear number-two player in IT services. Moreover, an EDS-HP combination should be able to deliver greater global reach and economies of scale than either firm separately.
EDS would also add depth and experience to HP’s IT outsourcing organisation. Although HP has proved it can handle large-scale global outsourcing contracts, it has nowhere near the reach and customer base of EDS in some sectors and markets, particularly government contracts. Such a combination could open up new avenues for HP to sell its software and systems-management products, as well as hardware.