HP in talks to buy EDS in deal reportedly worth $12B to $13B

Palo Alto-based HP and Plano, Texas-based EDS confirmed the talks Monday shortly after The Wall Street Journal reported a deal could be reached as early as Tuesday. Citing unnamed people familiar with the matter, the Journal said HP will pay $12 billion to $13 billion -a price that translates to $24 to $26 per share.

EDS shares soared $5.27,or nearly 28 percent, to finish Monday at $24.13. HP shares dropped $2.49, more than 5 percent, to close at $46.64 as investors fretted over the deal's logistics.

HP ended January with nearly $10 billion in cash.

If the deal is completed, it would be HP's biggest acquisition since it bought Compaq Computer Corp. for $19 billion in 2002.

HP has been trying to expand its technology consulting business for years, hoping to challenge rival IBM Corp.'s leadership in the lucrative field. In 2000, HP attempted to buy PricewaterhouseCoopers' consulting division before those discussions unraveled. IBM wound up buying PricewaterhouseCoopers' consulting arm instead.

Acquiring EDS also could open more government doors for HP, which had about $500 million in prime federal contracts in fiscal 2007. EDS is far better connected, with deals worth about $2.5 billion -putting it among the top 10 among government technology contractors.

Combined, HP and EDS still would lag significantly behind government contractors like Lockheed Martin Corp. and Boeing Co.

HP and EDS would "not create enough of a market concentration to raise any red flags," said Ray Bjorklund, a senior vice president at market research firm Federal Sources Inc.

EDS earned $716 million on $22.1 billion in revenue last year.

HP has been on a roll since it hired Mark Hurd as chief executive three years ago. Since then, it has surpassed IBM as the world's largest technology company, based on revenue and supplanted Dell Inc. as world's the top seller of personal computers.

The success has helped HP consistently deliver profits that top analyst estimates, which has helped to more than double the company's stock price since Hurd's arrival.

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AP Business Writer Dibya Sarkar in Washington, D.C., contributed to this story.