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HP Closes $13.9 Billion EDS Acquisition

The deal creates the world's second largest IT services and outsourcing vendor, trailing only IBM.
Hewlett-Packard said Tuesday that it has completed its $13.9 billion buyout of IT services giant Electronic Data Systems.

"This is a historic day for HP and EDS and the clients we serve," said HP chairman and CEO Mark Hurd, in a statement.

Hurd said the combined companies now have "the capability to serve our clients--whatever their size, location or sector--with one of the most comprehensive and competitive portfolios in the industry."

The deal is the largest in the outsourcing sector's history, and the second largest in the IT industry overall. It's second only to HP's $19 billion buyout of computer maker Compaq in 2002.

The merger plan calls for HP to shift the outsourcing operations of its Technology Solutions Group to EDS, along with parts of its consulting and integration activities. EDS' operations will remain under the control of current CEO Ron Rittenmeyer, who will report to Hurd. Rittenmeyer will retain much of EDS' current management team.

In one stroke, the merger creates the world's second largest IT and business services company, next to IBM. The combined services revenue for EDS and HP last year was, pro forma, $38 billion, compared to $54 billion for Big Blue.

HP's EDS unit now houses 210,000 employees, though that number will likely be reduced through layoffs and attrition that will likely occur in the wake of the deal's closure. EDS will maintain its headquarters in the Dallas area.

HP has struggled to grow its services business internally. Despite publicly stating its intention to become a leader in the outsourcing market and investing accordingly, the company often found itself in the position of also ran against competitors like IBM, Accenture and EDS itself when big deals were handed out.

To help understand the business process outsourcing landscape, InformationWeek has published a paper outlining the market forces at work. Download the report here (registration required).