Hewlett-Packard?s $13.9 billion deal for Electronic Data Systems seems to be entering a rough patch as two lawsuits that raise doubts about the deal?s valuation and shareholders interest have been filed.
Intermountain Ironworkers Trust Fund has filed a lawsuit in Collin County, Texas to stop the sale of EDS to HP, alleging that the terms of the sale agreement are unfair to EDS shareholders, as reported by the Dallas Business Journal. According to Dallas-based law firm Baron & Budd PC, which is representing the trust fund, EDS? deal with HP prohibits EDS directors from seeking a higher price from alternative bidders and guarantees HP a $375 million pay-off if EDS does not go through with the sale. Earlier, shareholder Joseph Villari filed suit in Delaware, asking the court to force EDS to auction itself off for a higher price, according to InformationWeek.
HP agreed to buy EDS for $25 per share in cash, plus assumption of debt, valuing the deal at nearly $13.9 billion. The transaction, expected to close in the second half of this year, still needs shareholders? approval.
In an email query to EDS, Bob Brand, director, corporate public relations, EDS Global Communications, said, ?EDS believes the transaction with HP is in the best interests of EDS shareholders and intends to defend itself vigorously.? HP refused to comment on the issue.
An analyst says if the suit goes against EDS, it will delay the buyout which can impact EDS and HP negatively. ?In such deals, the company usually responds in the favour of its shareholders. The company hires an advisor and sees that the deal is in the best interest of its share holders. However, an objection from the stake holders is possible, if they feel the deal is undervalued. If such objections happen, then the deal can go in to hassle, and there can be road blocks,? said a Mumbai based investment banker.