HP in Talks to Buy EDS for $12 Billion

Hewlett-Packard is close to a blockbuster deal to acquire Electronic Data Systems Corp. (EDS) for between $12 billion and $13 billion, the Wall Street Journal reported this afternoon, citing "people familiar with the situation." HP soon confirmed that it was "engaged in advanced discussions with Electronic Data Systems Corporation regarding a possible business combination involving the two companies."

Shares of EDS surged $5.27, or almost 28 percent, before a halt closed trading at $24.13. The valuation cited by The Journal implies a price between $24 and $26 a share for EDS. HP stock fell $2.48 (5 percent) to close at $46.65.

If HP succeeds, it will acquire more than 100 data centers in 26 countries worldwide, which EDS uses to manage IT operations for some of the world's largest tier-one enterprises. EDS is the second largest outsourcer in the world.

It would also continue an acquisition spree by HP in the data center space, where it has already bought design and engineering firm EYP Mission Critical Facilities and Opsware, which makes data center automation software. And what of reports in the UK press that HP is seeking to buy 24 data centers from British Telecom? It looks like HP has brought together the hardware, software and services, and now will have millions of square feet of data center space and billions of dollars in customer contracts.

Bob Welch, a global services analyst with technology research firm IDC, told MarketWatch the acquisition would make sense for HP. "Strategically, H-P, while a strong services player, would vault into a whole new category overnight," Welch said. "Along with IBM, H-P is one of the few companies that has the computer hardware and services that are feasible to support their hardware."

For more, see a history of EDS and analysis from InfoWorld and News.com.