HP Merges with EDS to Form IT Services Powerhouse

State and local governments seeking an IT services vendor on par with IBM may soon have another choice. Hewlett-Packard Co. (HP) and Electronic Data Systems (EDS) recently signed an agreement to merge sometime during the second half of 2008. HP will purchase EDS for $13.9 billion. Many see the merger as HP's attempt to better compete with IBM for IT services contracts. Mark Hurd, CEO of HP, took the job in 2003 and grew the company's hardware and software sales. Similar growth in the lucrative IT services sector has eluded the company. EDS, meanwhile, focuses on outsourced IT services and is a giant in that market.

Governments currently outsourcing services to EDS won't experience any differences from the company due to the merger, especially in the near term, said Bill Ritz, spokesman for EDS. "Until the deal closes, which we expect in the second half of the year, EDS and HP will be competitors," Ritz said. "Our first priority will be delivering quality service to our customers. The customers will not notice any effect at all."

EDS and HP expect the transaction to close in late 2008, more than doubling HP's service revenue, which amounted to $16.6 billion in fiscal 2007. The companies' combined fiscal 2007 revenue exceeded $38 billion and paid more than 210,000 employees. Between the two of them, the companies have clients in more than 80 countries. HP intends to create a new business group branded "EDS -- an HP company."

"The boards in both companies blessed the deal unanimously, and now the stockholders from EDS need to weigh in. We need to close the deal. Over that time, we'll be looking at how the companies will be shaped," Ritz said.

EDS will remain headquartered in Plano, Texas. HP plans for the company to continue being run by Ronald Rittenmeyer, chairman, president and CEO of EDS, who will join HP's executive council and report to Hurd.
"This is also going to give both companies an opportunity to learn from one another, and it will also give them access into other marketplaces," Ritz said.