Tuesday, May 13, 2008

EDS Letter On HP Buy

The big tech buyout story of 2008 is not Microsoft-Yahoo merger (or Microhoo!) as people have been thinking. Its the big budget buy of EDS from HP. HP has just pulled off another Compaq-like deal, but this time its not for grabbing the hardware market. Its a lot more broader market that they wish to capture. And for the deal, HP will purchase EDS at a price of $25.00 per share.

The EDS buy is more of a services and IT outsourcing plan from HP. EDS has lots of data centers around the world and has perfect infrastructure for the future of the web and web-based services. On-demand-IT, popularized by IBM ads in recent years is probably the main focus of HP buyout of EDS. Unlike what people think, EDS is not just an outsourcing company. EDS has got lots of data centers and manages those very well. Thus, HP will keep the EDS name according to Ron Rittenmeyer, President and CEO of EDS.

Ron Rittenmeyer has written an email to his employees and informs about the buyout. Read his email below:

To the EDS Worldwide Team:
Today is a historic day for the future of all of us at EDS, our valued clients, our shareholders and the entire IT industry. EDS and HP have reached a definitive agreement for HP to purchase EDS.

This transaction would be the largest ever in the IT services market and would create a formidable global competitor. EDS would join the world’s largest technology company. HP enjoys a well-respected global brand and broad worldwide resources – along with a strong operational background.

When the transaction is completed, which is expected in the second half of the year, HP will establish a new business group and brand it EDS – an HP company.

Importantly, EDS would retain the brand all of you have worked so hard to build over the last 45 years. EDS headquarters will remain in Plano and I plan to continue as chairman, president and CEO of this new business group.

Obviously, this news means major changes for everyone involved. There are many questions to be answered and decisions to be made in the coming months. Ensuring a successful integration is our top priority.

What doesn’t change, however, is EDS’ commitment to provide excellent service for our clients. And, we will relentlessly pursue new business while continuing to build the best delivery process in our industry. The core values of EDS are shared by HP, which makes this even more of a winning combination.

In the weeks ahead, I promise to communicate often with you about milestones and decisions affecting our company and our careers. We will thoughtfully manage this entire transition process – just as EDS and HP have done for many other companies we have each acquired.

To begin the dialogue, I invite you to watch a broadcast tomorrow to discuss the transaction. It will air live at 1 p.m. Central time on our EDS Global Broadcast Network, and will be re-broadcast often over the next several days. You will receive more information on the broadcast shortly.

As we complete this agreement, I ask each of you to stay committed to your work, performing at the high levels of service we expect for our clients and from ourselves. I know I can count on you to deliver.

We are – and will remain – EDS.
Ron Rittenmeyer

Om Malik thinks its HP foray to move into the cloud. Nick Carr thinks differently. Only time will tell what HP plans on EDS... I agree HP wants a bigger market on the datacenters and may be an Amazon-like service is coming up!!


Anonymous said...

HP hasn't done good to any company they have bought. All those companies have been killed by HP. Compaq, DEC are only a few examples and there are hundreds more to speak of...

HP and EDS are 2 completely different companies with completely different culture. Makes no sense to buy EDS and that too at such a high price. HP is only better at selling printer ink... and they should stick to that!!

Adi Ananthkrishnan said...

Excellent post of the letter... Hopefully we can have you upload Ron's video about the deal tomorrow..

Anonymous said...

I think what is happening here is an attempt to take a huge chunk of competitor DELL's business away. EDS has for several years used only Dell equipment. EDS is by far Dell's largest customer. Several years back, HP purchased Compaq, but has made few inroads against Dell. With the acquisition of EDS, I doubt that EDS will continue to do business with Dell.

Saptarshi Purkayastha said...

Sorry Adi, couldn't find the video on that webcast from Ron...

@anony-comment #3: I would agree on that EDS wont be publicizing Dell hardware to its customers on using it themselves. But putting so much money just to knock Dell seems a little less likely... Something bigger is on HP's mind!! Or like Compaq, we could just see the death of EDS in a few years!