HP To Acquire EDS
Posted by naveedsmind on May 12, 2008
Firstly – HP has been a solid company that has been able to grow extremely fast (from the tech drop in 2002 of $11.45 to a recent $55 per share). They’re pulling together over $100 billion in annual revenue from a number of offerings – Enterprise Storage and Servers for businesses, IT Services, Software Solutions, Personal System Computers, Imaging and Printing, and financial services. The company’s profit margins are increasing to over 9% (not bad for a production and capital heavy company). The P/E ratio of about 16.5 is under the industry’s 18.5. We’ve seen the stock take a beating from $51 down to $40 and back up to $49.97 this morning. Now with the acquisition news – we’re down to $46. Preliminary reports say the acquisition sticker price is at $12 billion.
Acquisitions are HARD WORK. The reason why the Street will instantly sell a stock once they talk about an acquisition is because many times their acquisition just won’t work out, and a company could lose billions in trying to make it so. Look what happened to Sprint after they bought Nextel. But HP has proven themselves time and time again that they know how to acquire good companies and translate them into top line revenue growth for the company.
EDS – one of the top global providers of IT support – will only strengthen HP’s already strong hold of the IT market. If you’re willing to buy long term (which you should be) – take the weakness in HP today as a buy signal. And any other budding global IT providers better roll up their sleeves, because the battleground just got tougher.
Disclosure: I own stock in HPQ
