HP closes $13.9b EDS deal

John Madden and David Mitchell/Ovum
01 Sep 2008
00:00

EDS is now an HP company; HP announced last Tuesday that it had completed its $13.9 billion acquisition of the Plano, Texas-based outsourcer. Coming a little more than three months after the deal was first announced - and following what seems to us like the most rapid approval process for a deal of this size in recent memory - HP now embarks on an ambitious and critical integration plan, the details of which will become clearer soon.

Managing the expectations of all the stakeholders in large M&A situations is never easy, but HP has set out on a strong path. The day that a deal officially closes sees everyone wanting to know every piece of detail about everything for the next three years - clearly unfeasible.

We don't expect HP to have all the answers at this stage, and if it does have answers, it has perfectly legitimate reasons - legal and otherwise - not to divulge them yet (many EDS employees are only hearing about HP's plans for the first time this week).

And it's important to remember that HP has completed more than 20 acquisitions since CEO Mark Hurd's arrival - so to say it has done this before is a bit of an understatement. A team of some 500 people have worked on the EDS integration plan which will be rolled out (somewhat ambitiously, we would say) on a 12-18 month timeline, according to HP. More information will come mid-September, when HP hosts securities analysts to discuss financial issues.

The announcement was truly historic for the IT industry, if a bit anti-climactic on how much detail HP was willing or able to disclose about its next moves. HP was very proactive in meeting with analyst firms like Ovum to discuss the deal's close, and updates later this year are already planned; we applaud that approach. But much of what was covered had already been publicized: HP's outsourcing organization will be folded into EDS, which now becomes HP's fourth business group and which will remain based in Plano.

EDS CEO Ron Rittenmeyer will continue in his leadership role, and the EDS Agility Alliance will continue with EDS's new parent company as a primary member.

In parallel to the analyst outreach were a whole series of customer, investor, and staff communications - giving as much detail as could be expected on day one of the deal. There was also confirmation of when a series of further communications would come out to the various communities. All good, but we think there is an argument for an additional flavor to these communications.

Some of the most critical questions on headcount reduction and improving EDS's cost structure - which will be accomplished, no doubt, by leveraging HP software, tools and best practices - are still to come.

There's also the important matters of how acquiring EDS will alter HP's go-to-market model, sales structure (both in outsourcing and in the company as a whole) and services delivery organization.

Confirming the timetable of when these key decisions will be taken and implemented would build additional confidence and give the community milestones to monitor.

In essence this is about opening up some of the major milestones in the 30- 60- and 90-day period.

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