Hewlett-Packard in Talks to Purchase Electronic Data

Hewlett-Packard in Talks to Purchase Electronic Data

May 12 (Bloomberg) -- Hewlett-Packard Co., the world's biggest personal-computer maker, is in talks to buy Electronic Data Systems Corp. in what would be Chief Executive Officer Mark Hurd's largest acquisition since taking over three years ago.

Hewlett-Packard confirmed the negotiations in a statement today after the Wall Street Journal said the two sides were in discussions. The Palo Alto, California-based company may pay as much as $13 billion for Electronic Data, according to a person familiar with the situation who declined to be named because the talks are private.

The acquisition would more than double Hewlett-Packard's annual sales in its services unit to almost $40 billion, making it as large a business as PCs. Buying Electronic Data, the second-biggest computer-services provider, also would escalate competition with International Business Machines Corp., the market leader.

``That's really one of the biggest areas in which they are relatively deficient in competing against IBM,'' Rick Hanna, an analyst at Morningstar Investment Services Inc. in Chicago, said today in an interview with Bloomberg Television. The move ``makes them a little bit larger, to compete with IBM on some of these large global deals.''

Hewlett-Packard, which gets about 15 percent of its revenue from services, also competes against IBM in sales of storage devices, software and servers -- computers used to run corporate networks and Web sites. Services generated $54.1 billion for Armonk, New York-based IBM last year, more than half its revenue.

Trading Halted

Electronic Data, based in Plano, Texas, rose $5.27, or 28 percent, to $24.13 before its trading was halted on the New York Stock Exchange. Hewlett-Packard declined $2.30, or 4.7 percent, to $46.83 before being halted.

Electronic Data confirmed the discussions in its own statement today, declining to comment further until an agreement is reached.

A $13 billion bid would equal about $25.87 a share, based on shares outstanding on April 25, according to Bloomberg calculations. That's 37 percent more than Electronic Data's share price of $18.86 on May 9. That premium doesn't look ``so surprising in the grand scheme of technology deals,'' said Mark Mowrey, an analyst with Al Frank Asset Management Inc. in Laguna Beach, California, which owns about 65,000 Hewlett-Packard shares. As a shareholder, Mowrey said he's pleased with the bid.

``Mark Hurd has gotten through the transitional stages, and growth is on forefront of his mind,'' Mowrey said. ``They've trimmed a lot of the fat out of the company, and they can see growth through acquisition.''

Trimming Costs

Hurd cut more than 15,000 jobs in 2005, and squeezed costs from data centers, pensions and real estate to save another $3 billion a year, he said in a January interview. At the same time, he's added some jobs. In addition to hiring salespeople, including 2,000 just last year, Hurd has expanded Hewlett- Packard's software, services and printing divisions, in part through acquisitions.

He's spent more than $6 billion on software companies, including the $4.5 billion acquisition of Mercury Interactive Corp. in November 2006. Last year, Hewlett-Packard's sales topped $100 billion for the first time, surpassing IBM as the world's largest supplier of computer technology.

If the Electronic Data transaction goes through, it would be Hewlett-Packard's largest takeover since the $18.9 billion buyout of Compaq Computer Corp. in 2002 by former CEO Carly Fiorina.

Hewlett-Packard's services business was the second-smallest unit in revenue last year after the software division. The services group reported sales of $16.6 billion in its latest fiscal year, compared with $22.1 billion for Electronic Data.

Hewlett-Packard, which is also the world's largest printer maker, is scheduled to report results for its fiscal second quarter this week.

Electronic Data CEO Ronald Rittenmeyer is firing workers and moving jobs to lower-cost countries such as India to reduce spending and attract more clients with lower prices. The company said last month that contract signings soared 66 percent to $5.6 billion in the first quarter.

BLOOMBERG