Under the terms of the deal HP payed $25 per share in cash, and will set up a new business group titled EDS, an HP company. HP hopes the purchase will better enable them to grapple with market leader IBM, who currently owns over double HP’s market share. The companies will combine to provide outsourcing, application development, consulting, and integration services to a variety of industries.
Both firms provide a variety of services geared to help companies run their networks, manage data, and process information, so expanding their reach should prove beneficial for HP. However in the past few years EDS has undergone significant reconstruction to improve profitability. They have lower margins than HP and have been growing at a slower pace, which could make the acquisition a liability if these trends are more than temporary.
HP may have also been enticed by the cloud computing possibilities associated with EDS’s many data centers stationed around the world. Cloud computing would drastically change the margins and potential market opportunities for consulting and outsourcing services, and allow HP to utilize EDS is much larger ways. HP has stated that they expect the deal to turn profitable by 2010.