HP to buy EDS for about $13.2 billion in cash

Under the terms announced Tuesday, Palo Alto-based HP will pay $25 per share in cash for EDS, which pioneered the concept of running computer systems and providing other high-tech help for large companies and government agencies.

It's a field dominated by IBM Corp., which generated $54 billion in revenue from technology services last year. HP's technology services revenue will more than double to more than $38 billion with the addition of EDS, which had $22 billion in revenue last year.

The deal is expected to close during the second half of last year and begin to boost HP's profit in its fiscal year ending in October 2010.

Once the marriage is completed, HP estimates it will have about a 7 percent share of the technology service market compared with IBM's 10 percent share. The deal will enable HP to leapfrog Fujitsu and Accenture in the niche.

To make sure the EDS takeover pays off, HP indicated it will make significant layoffs as it eliminates overlapping jobs and other expenses. In Tuesday conference calls with media and analysts, HP Chief Executive Mark Hurd and EDS CEO Ronald Rittenmeyer declined to estimate how many workers might lose their jobs.

"There are obviously going to be some changes," said Rittenmeyer, who will run the combined technology services unit and report directly to Hurd.

The combined services business would have 210,000 employees and operations in more than 80 countries. It will retain the EDS brand and EDS' Plano, Texas headquarters.

Hurd hailed the EDS deal as "compelling."

But analysts sounded less sure on Tuesday's conference call as they repeatedly grilled Hurd why he was willing to pay so much for EDS, given that the company's stock price had fallen by about 30 percent over the past year before news of the deal leaked out late Monday.