Hewlett-Packard to buy EDS for about $12.6 billion in cash

SAN FRANCISCO " Hewlett-Packard Co. has agreed to buy Electronic Data Systems Corp. for about $12.6 billion in cash to build a technology-services company that could challenge IBM.

The companies said Tuesday their boards had unanimously approved the deal, in which EDS shareholders would get $25 per share. That is a premium of almost 25 percent over what EDS had been trading on Friday. Word of the talks emerged Monday.

It would be HP's biggest deal in six years.

HP is the world's largest maker of personal computers, while Texas-based EDS provides technology services to the governments and companies around the world.

The sale is expected to close in the second half of this year and more than double HP's revenue from services, which was $16.6 billion in 2007. EDS had $22.13 billion in revenue last year.

Their combined services business would have 210,000 employees " although some analysts expect HP would trim jobs " and operations in more than 80 countries.

HP said the business would be based at EDS' headquarters in Plano, Texas, and led by EDS chairman and Chief Executive Ronald A. Rittenmeyer.

HP said it expects the deal would produce "significant" cost savings and add to earnings by next year.

Palo Alto-based HP and EDS had said Monday that they were in "advanced discussions" about a possible combination without providing additional details.

In Tuesday's announcement, the companies said the deal would have an enterprise value of $13.9 billion without defining what that included. But based on 502.6 million EDS shares outstanding as of April 25, the acquisition would be worth $12.57 billion.

If the deal is completed, it would be HP's biggest acquisition since it bought Compaq Computer Corp. for $19 billion in 2002. That acquisition paved the way for HP to supplant Dell Inc. as the world's largest PC maker.