At least one huge tech deal WILL happen this week
What with all of the hullabaloo about Friday’s meeting of Yahoo (YHOO) shareholders, it’s kind of amusing to note that a $14-billion tech-industry buyout will get approved by shareholders Thursday. That deal is getting far less ink than the deal that wasn’t, namely Microsoft’s (MSFT) purchase of Yahoo. No, the deal in question is Hewlett-Packard’s (HPQ) buyout of EDS (EDS). The target company holds its shareholder meeting Thursday in Plano, Texas, and the vote to approve HP’s takeover will be a formality.
HP and EDS have been quiet about their merger of less-than-equals since an initial spate of publicity when the deal was announced in May. The scuttlebutt is that EDS is an undermanaged mess and that HP CEO Mark Hurd can’t wait to get his hands under the hood.
It’ll be a good time for Hurd to get busy. He has enjoyed an extended run of clobbering HP archrival Dell (DELL), located elsewhere in EDS’s home state. However, if for no other reason than it’s been down so long, Dell recently has been closing the gap, at least in one measure I’m certain Hurd and his board follow closely: stock-market performance. Over the last year, as this chart shows, laggard Dell has proved to be only a slightly-worse investment than HP, with the spread narrowing over time.
HP isn’t saying when the EDS deal will close, but it won’t be this week. In an announcement last Friday, HP said its purchase will not close before Aug. 18. The reason? EDS shareholders sued to be sure the company paid out its last dividend before HP gobbles it up and the dividend goes away. That’s kind of wonky stuff — until you consider that EDS’s 5-cent-per-share quarterly dividend costs $25 million. That’s a fraction of the transaction value, of course, but still not chump change considering that HP’s first task will be taking an ax to EDS’s expenses.
I feel sorry for the long standing EDS employees and their management. According the Hurd playbook – the first expenses to be controlled are employees; pensions, bennefits and most importantly – salary incentives to leave. After a reorg where more employees are dismissed – only then will Gordon Gecko find an income adder to the the bottom line of HP.
Considering that EDS earnings beat the street this week based partly on lower than expected workforce-related costs, it doesn’t seem like EDS is an undermanaged mess. More like EDS was already moving in the right direction, but the story wasn’t reflected in the numbers yet. $25 wasn’t a bargain basement price, but I bet EDS will have a positive effect on HP’s bottom line sooner than the “scuttlebutt” predicts.
- I am willing to pay for value. When I... More
- I plan to auction a house from govern... More
- The recession is far from over. There... More
- I'll believe the recession is over wh... More
- No, I do not think the recession is o... More
- Interesting article, and commendable ... More
- I switched careers at age 57 from the... More
- Interesting that the primary focus fr... More
- as a homedepot "home service" custome... More
- Nice article - BUT - Carol Tome is li... More
Wall Street watchers think of capital markets and financial players out west as being on the "other" coast. That's not how it's viewed in the Pacific time zone. From the venture capitalists of Sand Hill Road to the bond kingpins of Orange County to the corporate finance department at a certain software company in Redmond, Wash., there's plenty going on "out there." Adam Lashinsky should know. A native of Chicago, he has covered West Coast finance for a decade, with an emphasis on money matters in Silicon Valley. If it involves money and it's happening west of the Mississippi, look for it in Go West. 
For the 2nd time in 6 years, EDS is once again getting fleeced by its management and board. If you add up the Dick Brown fiasco and now, garage salesman Ron Rittenmyer, EDS will have paid out nearly 300 million to these clowns whose only success at EDS was to fatten their pockets and those of their hand-picked executives. Today is a sad day for a once proud company that founded the IT industry.