HP agrees to buy EDS for $13.9 bn

Varinder Bansal and Raja Rajeshwari, CNBC-TV18

Hewlett Packard, has agreed to buy EDS for USD 13.90 billion at USD 25 per share. The world's largest personal-computer maker will buy technology outsourcing company Electronic Data Systems. EDS holds 60.9% stake in MphasiS.

The deal will be completed in the H2 FY09. The transaction will more than double HP's revenues from services. EDS will continue to be led by RA Rittenmeyer.

HP said the transaction will be accretive to '09-'10 non-GAAP earnings.

EDS stock was up 28% yesterday.

The question is - is an open offer likely for MphasiS?

Analysts feel there may be an open offer since it's an acquisition. However, the company can seek an exemption from Sebi, which decides on a case-to-case basis. However, the parent level acquisition has to be completed first.
 
HP says it is not seeing any negative implications. In fact, it is seeing more business from MphasiS. The Indian company sees a lot of business potential from the HP-EDS combination. HP-EDS will have a 7% market share of the USD 500-550 billion IT services market. Its strong BPO capability is a positive for MphasiS.

However, the medium-term concerns for MphasiS include consolidation with HP India delisting.

For EDS, the deal could be seen as a need for restructuring to push it for higher and faster growth. The cost cutting will boost EDS' margins and unlock value. It will generate revenue synergies akin to IBM by owning a large outsourcing business.

EDS is curently number two (behind IBM) in terms of signing share of large IT outsourcing deals. Its strengths are cross sell and a huge client base. This deal may leverage huge data center presence to leverage for large outsourcing deals.