|HP CEO Mark Hurd is taking a risk by bidding for troubled services player EDS. Image: HP|
Hewlett-Packard CEO Mark Hurd has built a world-class reputation as a cost-cutting turnaround artist, and he’s risking it all with a smart bid for technology services giant Electronic Data Systems.
announced Tuesday that it would pay $13.9 billion in cash for Texas-based EDS
, which manages technology projects for a range of large clients. If HP does it right, buying EDS is the business equivalent of a triple-play. In one fell swoop HP is more than doubling the revenue of its services arm, mounting a more serious threat to IBM
, and shutting down a distribution channel for other competitors.
Strategically, the deal makes sense. Hurd is in the midst of expanding HP beyond its base providing lower-margin hardware like PCs and printers. Instead, he wants HP to grow more profitable businesses such as “services,” – industry parlance for helping customers to buy and manage technology gear. (In a Super Bowl commercial eight years ago, EDS memorably compared this tech management challenge to herding cats.)
Still, Hurd’s play for EDS is a gamble. It will raise questions on Wall Street about the efficiency expert’s ability to close a mega-deal. Hurd and his team will also face the daunting task of deciding whom to keep among EDS’s 140,000 employees, how to get the troubled company into shape (it’s trading far below its $22 billion annual revenues), and how to manage the acquisition without losing ground to rivals. So far, investors are taking a wait-and-see approach. After news of the deal talks broke Monday, HP’s stock dropped just 5 percent to close at $46.83, a relatively small hit given the size of the deal. EDS stock rose 28 percent to $24.13 per share on Monday.
|In a humorous Super Bowl commercial years ago, EDS compared the technology services business to herding cats. If an acquisition goes through, HP could have a similarly tough task integrating EDS.|