HP to buy EDS in $13.9-bn deal

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In what could be a significant move in the global IT industry, Hewlett-Packard (HP), the world’s biggest personal-computer maker has agreed to buy Electronic Data Systems (EDS) for $13.9 billion. It will be shelling out $25 for each share of EDS, 33% more than EDS’ closing price on May 9, before the companies disclosed they were in talks.

The purchase is Hewlett-Packard’s largest since the $18.9-billion takeover of Compaq Computer Corp, led by chief executive officer Mark Hurd’s predecessor, Carly Fiorina.

The acquisition will start adding to earnings, excluding some costs, from FY09, Hewlett-Packard said on Tuesday in a statement. This move will help HP double its revenues from services, taking them to $40 billion, as global PC shipments are expected to slowdown. Currently, HP gets about 15% of its revenue from services.

This move has an impact on Bangalore-based MphasiS, as EDS holds 60.9% of its equity. The market now expects that the local IT services firm’s share to be de-listed from the Indian bourses. Shares of MphasiS zoomed by 17.5% in intra-day trading on Tuesday before closing at Rs 242.95, up 9.93% or Rs 21.95 from Monday’s close on the NSE.

Analysts expect HP to make an open offer to MphasiS shareholders and take it private. “An open offer will come into play, as there will be a significant change in management control,” an analyst with a Mumbai-based domestic brokerage said. “I think HP will de-list it and HP India will merge itself with MphasiS,” he said. Speculations were rife that EDS would be making yet another open offer to MphasiS shareholders to de-list the firm.

For the financial year ended March 31, 2008 MphasiS had a net profit of Rs 255 crore on revenues of Rs 2,423 crore, with a modest 4% sequential growth in revenue for the fourth quarter, while operating margins declined 1.6% sequentially.

And though these results were largely disappointing, added to this the reduction in manpower from 8,000-10,000 to 7,000-8,000 for FY09, several brokerage houses expected an increased traction due to client additions.