Posted by Tom Foremski - May 12, 2008
Hewlett-Packard this afternoon confirmed it has had advanced talks with EDS, the Texas-based IT services company, about "a possible business combination." Shares in EDS soared 28 per cent boosting its market value to $12 billion according to Reuters. HP shares fell 5 per cent.
EDS's performance has been lackluster reports Reuters:
"Unless HP has some synergies where they can dramatically impact earnings growth of EDS, I'm not sure why they'd want to buy it," said Jim Huguet, co-chief executive at Great Companies LLC. He noted that EDS's earnings growth has averaged 2.8 percent.
"EDS is trading at about half its historical PE, so they're obviously seeing it as a value, which it is if you can generate earns growth at 15-20 percent. But my question is whether it will become a drain on Hewlett-Packard?"
In April, EDS reported a 62 percent decline in first quarter profit, though the results had topped Wall Street expectations. Despite the beat, analysts said EDS faced intense competition from Indian rivals and saw little catalyst for growth.
Please see Dennis Howlett: HP to take out EDS: does it make sense?
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