HP (HPQ) officially unveiled its bid for tech services giant EDS (EDS) — rumoured yesterday afternoon — and raised guidance.
HP will pay $25 per share, or an enterprise value of $13.9 billion, for EDS — a roughly 30% premium from where EDS was trading Monday afternoon before the news broke. This morning, EDS shares are trading around $24.42, up 1.4% in pre-market trading, while HP stock is down 1.9% to $45.97. HP is down 7% from its Monday open at $49.39.
A deal would make H-P the world’s second-largest provider of technology services after International Business Machines Corp. EDS’s 137,000 employees run computer servers and mainframes, manage corporate help desks and process data for everything from credit cards to airline tickets.
The deal is expected to add fiscal 2009 non-GAAP earnings and to 2010 net income, with “significant synergies” expected.
The move is a complicated strategic gambit for H-P Chief Executive Mark Hurd. H-P already is a sprawling conglomerate that is the world’s largest maker of personal computers, with a market capitalisation of $115 billion. Now it would have to digest a large company with a starkly different culture than its own.
HP says the deal would be financed through existing cash and new debt, and should close in the second half of calendar 2008. EDS CEO Ron Rittenmeyer will lead the new business group, reporting to Hurd.
Meanwhile, HP reported preliminary earnings and raised guidance. During Q1, it said adjusted EPS came in at $0.87, beating the Street’s $0.84 consensus. Revenue increased 11% to $28.3 billion, beating the Street’s $28.0 billion consensus. For the fiscal year, HP raised its earnings estimate by $0.04 to $3.54-3.58 a share, and now expects revenue of $114.2-114.4 billion, up from its prior forecast of $113.5-114 billion. The new outlook is above consensus.
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.