For the past year, Hewlett-Packard (NYSE: HPQ) posted revenues of $107 billion. So, to grow just 5%, the company will need to essentially create another Fortune 500 company.
That's something HP's CEO, Mark Hurd, definitely has mentioned on various occasions. Basically, how can a behemoth continue to grow?
Perhaps a smart strategy is to make big acquisitions?
Well, today HP has announced a hefty $13.9 billion buyout deal for EDS (NYSE: EDS), an information technology (IT) consulting operator. Over the past year, EDS posted about $22 billion in revenues.
But Hurd is not just concerned about the top-line. If anything, he's highly disciplined with generating profits. In fact, since he has come on board HP (back in 2005), Hurd has been masterful in finding efficiencies – while still pushing revenue growth.
While the history of transformative M&A is filled with failures, with the HP-Compaq combination a prime example of what can go wrong, the strategic rationale for the EDS deal makes sense. In today's global environment, customers want strong technologies but also sophisticated services. Actually, companies are increasingly outsourcing services to players like EDS.
Moreover, with much more heft, HP and EDS will become a formidable alternative to IBM (NYSE: IBM), which has proven the technology/services model.
Finally, I'm sure that Hurd will take out his cost-cutting knife. It's something that hasn't been emphasized but I'm sure it will be a big part of the deal.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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Reader Comments (Page 1 of 1)
5-13-2008 @ 6:53PM
NewsVisual said...
The Hewlett-Packard Co. announced on Tuesday that it was acquiring the Electronic Data Systems Corp. for approximately $13.9 billion or for the price of $25 per share, according to an HP press release. The Boards of Directors of both HP and EDS have given their approval of the deal, HP reported. EDS CEO/President/Chairman Ronald A. Rittenmeyer will continue to lead EDS after the deal closes, and Rittenmeyer will report to HP CEO/Chairman Mark Hurd. "The combination of HP and EDS will create a leading force in global IT services," said Mr. Hurd. "Together, we will be a stronger business partner, delivering customers the broadest, most competitive portfolio of products and services in the industry. This reinforces our commitment to help customers manage and transform their technology to achieve better results," Mr. Hurd added to explain the rationale for the merger.