HP SHARES tumbled more than 6 per cent in US trading yesterday following the technology giant's announcement that it had agreed to buy Electronic Data Systems (EDS) for $13.9 billion (€8.9 billion).
It was the biggest drop in HP's share price in almost four years and a signal that investors feel the PC and printer maker may be paying too much.
EDS, which was founded by Ross Perot in 1962, specialises in the provision of technology and business process outsourcing services. HP is looking to boost its technology services division as it seeks to gain ground on market leader IBM.
The acquisition is expected to close in the second half of the year and will more than double HP's 2007 services revenue of $16.6 billion. The combined entity will employ over 210,000 in services.
It is the biggest acquisition HP has made since it purchased Compaq in 2001 for $18.9 billion. Difficulties in integrating the two companies were widely reported to have been behind a falling out between then chief executive Carly Fiorina and the HP board, which ultimately cost her her job.
The proposed EDS acquisition is HP's largest since current chief executive Mark Hurd took over in 2005.
While the deal will help HP compete with IBM, some investors may be concerned Hewlett-Packard will not save enough money to warrant the price. EDS is "a lower-growth, lower-margin business than HP", said Chuck Jones a fund manager with Atlantic Trust Private Wealth Management. "It really does cause you a bit of pause for concern."
HP Ireland managing director Martin Murphy welcomed the acquisition. He said HP locally was well established in technology outsourcing, but the addition of EDS would enable it to expand into application and business process outsourcing. "It will give us a very strong competitive position in the local market," he said.
EDS employs about 300 staff at a centre in Dublin which was established in 1990. HP employs about 4,000 people at sites in Dublin, Leixlip and Galway. HP also announced preliminary second quarter results yesterday with revenue of $28.3 billion compared with $25.5 billion a year ago.
- (Additional reporting Bloomberg)
