Tuesday, 13 May 2008

HP confirms $13.9b acquisition of EDS - First Tier One + Tier One for 20 years

HP has confirmed that it will be buying EDS for $13.9b or $25 per share. Both boards have agreed the deal. The acquisition should complete in H2 2008. The deal has created 'mixed' reactions - at best. Interesting to note that the markets knocked $16b off HP's valuation - ie MORE THAN the price Hurd is paying for EDS.

EDS employees and customers will be heartened that "HP intends to establish a new business group, to be branded EDS – an HP company, which will be headquartered at EDS’s existing executive offices in Plano, Texas. HP plans that EDS will continue to be led after the deal closes by EDS Chairman, President and Chief Executive Officer Ronald A. Rittenmeyer, who will join HP’s executive council and report to Mark Hurd, HP’s chairman and chief executive officer. "

I am reluctant to add to the welter of comment on this deal. If you haven't seen these (where have you been?) read :

- Financial Times - Shares hit by HP landmark $14b move to buy EDS - and the rather good review of how IBM 'done it' - IT deal raises small matter of Big Blue
- PC World - HP and EDS: A high risk pairing say analysts (in which "Veteran IT analyst" Holway is quoted!)

Of course, I would also recommend the review by Phil Codling of the 'old' Ovum Holway team. Click here.

Personally, as I said last night, I am broadly in favour of the deal provided the people 'assets' are protected and 'culture' respected. The devil will be in the execution. But, as the FT says "if Hurd gets even close to replicating IBM's success in [the IT Services/outsourcing] area, the deal will turn out to have been shrewd"


At the Intellect Roundtable on Tuesday I did actually cause a round of laughter when I said "I've been forecasting that a tier-one player will take over another tier-one player for 15 years and now it's finally proven that I was right." But when it is written up coldly like that in the media today it rather loses its humourous edge!

It is interesting to note, however, that although we have seen many "Tier-one + Tier One"-type M&A in software, hardware, media etc., there hasn't been one on the global IT Services scene in my memory recall. It's always tended to be Tier One (defined as "Top Ten") buying Tier Two and most often Tier Three.

In the UK, you have to go back to the 1980s to find the last tier-one (Top 10) UK IT Services player taking over another tier-one (Top 10) player. It would probably have been Systems Designers taking over SCICON (which ironically, as SD Scicon, was actually taken over by EDS and is the subject of the current HP bid) or Thorn EMI Software/Software Sciences linking up with Datasolve to form DataSciences (now IBM Global Services) Most of the UK's Top Ten IT Services players of 20 years back have been the subject of foreign takeover rather than local consolidation.

If someone had had the foresight and resources to put together any combination of Data Sciences, Hoskyns, Logica, CAP, SD-Scicon, ICL, the UK might have a Global Tier One IT Services player today.

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