In a deal with major implications for India, Hewlett-Packard Co (HP), the world’s largest PC-maker, is set to acquire service company Electronic Data Systems (EDS) Corp for nearly $14 billion in a deal to take on giant IBM. EDS controls Bangalore-based MphasiS, India’s fifth-largest IT company.
The two global giants will clash in a hot growth area in which machines, software, storage and support are increasingly mixed in one-stop offerings clubbed as IT infrastructure in the global IT services game.
The HP-EDS deal announced on Tuesday signals a stronger global competitor for the country’s IT industry led by firms like Tata Consultancy Services and Infosys, and also suggests sustained global demand for India’s software engineers and network managers in the job scene as the world gears for large grids of network computers and complex applications.
Besides IBM, Accenture, EDS and Perot Systems have been among major IT recruiters in India, which is a strategic battlefield.
Shares of MphasiS, which comes after TCS, Infosys, Wipro and Satyam in size, surged about 11 per cent as news of the acquisition talks came overnight from the US, and brought back interest in software companies worried by a strong rupee and a US slowdown over the past year
HP, which is better known for its computers and printers and a difficult digestion of once-shining Compaq computer brand, said it will pay $13.9 billion (Rs 55, 600 crore) for EDS, which has a captive operation in addition to MphasiS.
“Both HP and EDS see India as a key area in their overall strategy and are looking to strengthen their capabilities that will help them to bring more work to India,” says Rajesh Jain, Head, Advisory services, KPMG.
HP has been struggling to grow its services business, which is currently dominated by India and where other global majors have a significant presence. IBM has about 40,000 employees and Accenture CEO Bill Green recently said that the company plans to hire 50,000 employees in India by end of 2009.
HP will pay $25 a share, a 32.5 per cent premium to EDS’s closing price of $18.86 on Monday.
Texas-based EDS will become a separate business group under HP, which already has a strong captive presence in India, in addition to its ownership of the former Digital Globalsoft which it swallowed as part of Compaq.
HP said the transaction is expected to close in the second half of 2008.
“The combination of HP and EDS will create a leading force in global IT services,” said Mark Hurd, chairman and CEO of HP.
A deal would make H-P the world's second-largest provider of technology services after International Business Machines (IBM) Corp. EDS has 137,000 employees who maintain and support IT systems. The combined company would be able to trim overhead costs, while allowing HP to sell more servers and workstations to EDS’ consulting clients. That’s largely been the model for IBM.