Saving on services at HP

Like so much at Hewlett-Packard these days, CEO Mark Hurd seems to be succeeding where his predecessor, Carly Fiorina, failed. In this case, Hurd is set to buy outsourcing giant EDS in a $13.9bn deal. While Wall Street roughed up HP a bit, there wasn’t anywhere near the outcry that hit Fiorina when she tried to pull off her multibillion-dollar services deal in late 2000. Following the hammering from investors, Fiorina relented and backed away from her plan to pick up the consulting business at PricewaterhouseCoopers after just two months. (Of course, IBM ended up getting a bargain two years later on the PwC unit, paying $3.5bn for it in 2002. That was just one-fifth the amount HP was set to hand over.)

The goal of the moves by Fiorina and Hurd is the same: build up the services arm of the hardware-oriented company. (With 2007 revenue of $22bn, EDS would more than double the size of HP’s services business.) Hurd has already used that strategy in the company’s software portfolio, shelling out $4.5bn for Mercury Interactive to effectively double the size of that division. Of course, we suspect the support Hurd is enjoying for his planned acquisition has more to do with fiscal reasons than strategic ones. Paying less than 1x sales for EDS is a very ‘un-Fiorina’-like valuation. 

Rival moves in services

Acquirer Target Announced Deal value Target TTM sales
IBM PwC (consulting arm) July 30, 2002 $3.5bn (adjusted to $3.9bn) $4.9bn
HP EDS May 13, 2008 $13.9bn $22bn