Hewlett-Packard in Talks To Buy Electronic Data Systems

Hewlett-Packard Co., the biggest personal-computer maker, is in talks to buy Electronic Data Systems Corp., a deal that would be the largest acquisition for the chief executive officer, Mark Hurd, since taking over three years ago.

Hewlett-Packard confirmed the negotiations in a statement yesterday after the Wall Street Journal said the two sides were in discussions. The Palo Alto, Calif.-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," an analyst at Morningstar Investment Services Inc. in Chicago, Rick Hanna, said yesterday 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% 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, N.Y.-based IBM last year, more than half its revenue.

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

Electronic Data confirmed the discussions in its own statement yesterday, 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% 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," an analyst with Al Frank Asset Management Inc. in Laguna Beach, Calif., which owns about 65,000 Hewlett-Packard shares, Mark Mowrey, said. As a shareholder, Mr. Mowrey said he's pleased with the bid.

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

Mr. 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 last year, Mr. 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.