Monday, 12 May 2008

HP to buy EDS for $12-$13b

As I write this piece at 10.30pm on Monday night, it has just been announced that HP is in advanced talks to buy EDS. A price of $12-13b is suggested. EDS shares have been suspended after rising 28% to $24. EDS has issued a statement admitting that the talks are taking place. An announcement is expected on Tuesday.

This is HP's first major acquisition in IT Services. You may remember that they withdrew from buying PWC's consulting activities in 2000 for c$18b.

If this deal is consummated it will be the first "Big eat Big" deal in IT Services. We have long anticipated that there would be a raft of consolidation in the sector by Tier 1 suppliers buying other Tier 1 suppliers. It didn't happen - although there was a lot of Tier 1 buys Tier 2 buys Tier 3 etc.

In the UK, EDS is already the #1 supplier of SITS to the UK market. HP is #9. As I said above, the first Tier1+Tier1 for decades. A combined HP+EDS will be the out-and-out leader - at least a third larger than the new #2 - IBM. That's not close to a 'monopoly' situation however.

My initial reaction is favourable. It's a lot different to HP+PwC in 2000 which we described as "Ink Heads buys Think Heads". HP has moved on...a lot! HP now has a lot of Think Heads too so, although I don't discount the culture issues, they are not as great as 8 years back. This kind of deal was becoming inevitable in a mature market. EDS' growth rate had been pretty pedestrian - as was HP in IT services. Both face great competition from the Indians. Consolidation just had to happen.

EDS has some damn good people - like Bill Thomas who runs EDS EMEA. HP must ensure that these stalwarts stay. Golden handcuffs are clearly required.

I'd have probably preferred another buyer. Private equity would have been best for the management and culture. Why not BT, for example? If BT are really serious about becoming a global IT services player, this was one way to do it. But I guess a share price off by 30% is not the greatest base from which to launch a $12b bid.

So who next? Or rather, who now isn't in play? Obviously Atos Origin is 'in play' anyway. CSC had been close to being sold in 2006. Capgemini is a jewel - but it's French; so the Govt would find a way of finding a French bidder should the necessity arise.

Clearly Holway reviewing SITS M&A is never going to stop.

1 comment:

Ya-Habibi said...

I agree with you completely. Its a good news. Whats going to happen in the future was my first reation. What about Accenture and Logica merger in the future? I think they should work together to become give a more serious competition to IBM and EDS.