Hewlett-Packard (HPQ) confirmed it’s buying EDS (EDS) for $25 a share, or $12.5 billion. HP said the deal will more than double its services revenue and add to earnings by 2010. HP said it intends to establish a new business group, to be branded EDS – an HP company, which will be headquartered at EDS’s existing executive offices in Plano, Texas. 

“The combination of HP and EDS will create a leading force in global IT services,” said CEO Mark Hurd. “Together, we will be a stronger business partner, delivering customers the broadest, most competitive portfolio of products and services in the industry. This reinforces our commitment to help customers manage and transform their technology to achieve better results.”

HP doesn’t seem to be making the deal out of weakness: The company said Tuesday it expects to make 87 cents a share for the second quarter on revenue of $28.3 billion. Both of those figures are above the Wall Street analyst consensus estimate. HP also boosted its full-year forecasts. And Hurd will no doubt explain how deal will help HP take on the biggest U.S. computer services company, IBM (IBM), in conference calls set to begin at 8 this morning.

But skeptics point to EDS’ slow growth and wonder why Hurd would jeopardize the turnaround he has so painstakingly guided with a big deal. Judging by the reaction in HP shares - the stock sold off yesterday on reports of the deal, and dropped an additional 2% in premarket trading Tuesday - a lot of investors are yet to be persuaded this is the right deal for HP.

Toll Brothers (TOL) said revenue fell 30% from a year ago in its fiscal second quarter ended last month, as sales volumes and prices continue their two-year-long slide. The Horsham, Pa.-based homebuilder posted a 44% decline in net signed house-sale contracts, while the average price per unit dropped 25% to $534,000. The company said cancellations fell from year-ago levels, to 308 from 384, but Toll paid a steep price for losing those deals: the average price of a canceled contract - $760,000 - was 42% above the company’s net average contract price for the second quarter.

“We believe there is significant pent-up demand which is growing. When we have held promotions, buyers have come out to play and put down deposits,” said CEO Bob Toll. “Often, however, a lack of confidence in the direction of home prices overcomes their enthusiasm and they don’t take the next step of going to contract.”

Toll said he believes the company’s premium pricing and strong balance sheet, together with thinning competition in the house-building business, will serve Toll well when the market turns, and in the meantime the company is looking opportunistically for acquisitions. But like the house buyers who don’t know when prices are going to bottom, Toll remains on the sidelines for the moment. “With over $2.5 billion of available capital we hope to be able to take advantage of opportunities that we expect will arise from today’s distress,” Toll said. “We are looking for deals in most markets but have yet to see any opportunities that fit our parameters of high-end communities at bargain prices. More offerings have come to market recently but nothing has excited us yet.”

Meanwhile, despite the poor numbers from Toll and its rivals, investors seem to have faith the sector will turn around sooner rather than later. Toll shares are up 15% this year.

AIG (AIG) is getting a big slug of new capital a day ahead of what is shaping up to be a contentious annual meeting. The New York-based insurer said it raised $11.9 billion by selling 171 common shares and 72 million equity units that convert into common stock at a 20% premium to Monday’s closing stock price. The big sale shows strong demand for AIG’s shares: The company had said Friday it would raise just $7.5 billion in the first two legs of its capital raising plan, which is also to involve the issuance of $5 billion of so-called equity-rich fixed-income securities. But the new cash comes at a steep price to existing shareholders. AIG priced the common stock at $38 a share, a 14% discount to the stock’s trading price before the company unveiled its $7.8 billion first-quarter loss Friday morning.

The stock sale comes as former chief Hank Greenberg escalates his long-running battle with the company. Greenberg, AIG’s biggest shareholder, wrote in a letter to the board Monday that AIG is “in crisis” after two quarters of record-setting losses. He questions the company’s decision to dilute existing shareholders with the capital-raising plan, as well as AIG’s failure to make the case for the actions it has taken, including a bizarre increase in its dividend.

“AIG has not articulated why it has chosen to raise approximately $12.5 billion in the capital markets rather than pursuing other paths, such as the divestiture of non-core assets (several specific options spring to mind) or the infusion of capital from sovereign wealth funds or private equity funds – paths pursued by other large, diversified U.S. financial institutions,” Greenberg writes in a letter to the board and filed with the Securities and Exchange Commission. “Shareholders deserve to know how this decision was reached and what other alternatives were considered and evaluated.”

Greenberg, saying shareholders have lost $80 billion over the past year, says several big AIG investors have called him to express “deep concern” about the company’s path. Management led by CEO Martin Sullivan has suffered a “complete loss of credibility,” Greenberg writes, and he proposes that AIG delay Wednesday’s annual meeting to allow investors to digest the latest actions. But AIG’s board says it sees no need to postpone the event. Sounds like the meeting, which AIG will webcast starting at 11 a.m. EST Wednesday, could be quite a spectacle.

Hewlett-Packard (HPQ) chief Mark Hurd has some explaining to do. HP shares dropped 5% after The Wall Street Journal reported the company is about to announce a purchase of computer services outsourcer EDS (EDS). Investors in EDS love the reported deal, in part because the company has been trying to sell itself on and off for years. But for Hewlett investors, the transaction could be more troubling, says Stephen McClellan, a former computer services analyst at Merrill Lynch and Salomon Brothers.

“EDS is viewed as a no-growth, struggling company in an area that has matured,” says McClellan. While he says Hurd has earned high marks for his work in making HP a sharper, better-focused organization over the past three years, the decision to make a splashy acquisition that offers few apparent opportunities for economies of scale “certainly raises a few questions” about the sustainability of Hurd’s turnaround at HP, McClellan says.

“Hurd is a low-key, quality guy,” McClellan says. “He’s a terrific inside leader.” McClellan adds that Hurd’s gains at HP - the stock has more than doubled since he took over for Carly Fiorina back in 2005 - are all the more impressive because he has generally eschewed big acquisitions in favor of good old-fashioned organic growth. But the decision to depart from that strategy with an EDS deal is “confusing.”

McClellan says he believes Hurd deserves “the benefit of the doubt” because of his excellent work at HP so far. But he outlines what he sees as the worst-case scenario about big acquisitions in his recent book, Full of Bull, which aspires to tell investors how they can filter out the noise in Wall Street research to make better investing decisions. In the book, McClellan calls Fiorina’s purchase of Compaq “a distress tactic” whose failure was foreordained - and suggested conditions at HP were more dire than investors knew. HP investors are certainly hoping they aren’t about to see that movie again.

EDS (EDS) shares spiked after The Wall Street Journal reported Hewlett-Packard (HPQ) is near a deal to acquire the computer services company for $12 billion to $13 billion. A deal, which the Journal reports could be announced as soon as Tuesday, would value EDS shares in the mid-$20s, up from $18.86 at the close Friday. Update: HP confirms it is talking with EDS about a “possible business combination.”

The acquisition would be HP’s biggest since CEO Mark Hurd took over in 2005, eclipsing the company’s 2006 purchase of software company Mercury Interactive. HP shares have more than doubled since Hurd arrived - but as Fortune’s Adam Lashinsky recently pointed out, Hurd is never satisfied with what others might deem success. “You should think of HP as a company of transformation with a bunch of mini-transformations within that,” Hurd said back in February. While HP shares dropped 3% on word of the possible deal, EDS shares jumped 25%, hitting $23.70 in afternoon trading.

IndyMac (IMB) is showing that turning the corner isn’t all it’s cracked up to be. The Pasadena, Calif.-based lender posted a first-quarter loss Monday, as the bank took another big hit to its bottom line to add to its reserves for future loan losses. IndyMac lost $184 million, or $2.27 a share, compared with the year-ago $52 million, or 70 cents a share. Credit provisions and costs were $249 million in the latest quarter, which IndyMac chief Mike Perry noted represents a 71% drop from the fourth-quarter level. Perry said that decline shows IndyMac “took the appropriate steps in the second half of last year to get the bulk of our credit costs behind us.”

But IndyMac also said it can’t tell when U.S. house prices will slow their decline, and said it won’t be able to predict a return to profitablity until they do. Until then, its first priority is to build capital - which is why IndyMac is deferring interest payments on holding company trust preferred securities, and suspending dividend payouts on bank non-cumulative, perpetual preferred stock.

“With these actions and with declining quarterly losses,” Perry wrote, “we forecast that our capital ratios will improve throughout the remainder of the year and that we should remain well-capitalized throughout this crisis, although we can make no guarantees that that will be the case.”

The remarks come just over a week after Perry set off a sharp rally in IndyMac’s beaten-down shares by saying the company had “turned a corner.” Perry reiterated those comments Monday, but he also indicated the company faces a long road to recovery. IndyMac shares dropped 7%, giving back the last of the gains they made back on May Day.

Sprint (S) posted another loss as wireless subscribers continue to flee. Sprint lost $505 million, or 18 cents a share, for the first quarter ended March 31, compared with a year-ago loss of $211 million, or 7 cents a share. Revenue dropped 8% from a year ago to $9.33 billion. Sprint’s adjusted profit, which removes the effects of special items such as job-cut costs and merger-related amortization expense, slid to 4 cents a share from 18 cents a year ago.

“As expected, our Wireless business delivered weak financial results,” CEO Dan Hesse said. “While the business will continue to face challenges in the short term, we are making progress in methodically attacking the sources of our performance issues.”

Sprint said it lost 1.09 million wireless users in the latest quarter, which is a bit better than the company’s forecast for a loss of 1.2 million users. Still, wireless revenue dropped 9% from a year ago and 6% from fourth-quarter levels, while average revenue per user dropped as a result of “customer migrations to lower-priced plans, a higher-than-average [average revenue per user, or ARPU] in deactivating subscribers, and increased customer concessions to improve retention,” Sprint said.

Sprint said it has completed its latest round of job cuts, but suggests there could be more to come later this year. “In light of the trend of our declining earnings before interest, taxes, depreciation and amortization, we are continuing to implement cost reduction initiatives, are exploring de-levering, disposition of non-core assets and other measures” to stay in compliance with lenders’ terms, Sprint said. The company says it continues to assess its business model and financial outlook and will update investors in August.

MBIA (MBI) posted another big loss. The bond insurer lost $2.4 billion, or $13.03 a share, for the first quarter ended March 31, compared with the year-ago profit of $199 million, or $1.46 a share. The latest quarter included a $3.6 billion mark-to-market writedown on MBIA’s insured credit default swap portfolio. The news, which follows a $2.3 billion fourth-quarter loss, comes a week after CEO Jay Brown insisted the company doesn’t need new capital and warned shareholders that the company was struggling to arrive at a valuation for the insured credit default swap portfolio. “I can tell you with great certainty that no two people could ever agree on this calculation,” he wrote, “so don’t be surprised when external sources propose wildly different possibilities for MBIA.” Brown is due to host a conference call at 2 p.m. EST, so the external sources may have their say then. MBIA shares fell 12% in early trading Monday to $8.30.

Fuel prices are killing FedEx (FDX). The Memphis, Tenn., freight company cut its fourth-quarter earnings forecast, citing a 7% rise in fuel prices since it made its last projection back in March. FedEx said it now expects to make $1.45-$1.50 a share, down from the previous forecast of $1.60 to $1.80 a share. FedEx, which made $1.90 a share in the year-ago quarter, said the weak economy “has restrained demand for U.S. domestic express package and LTL freight services,” but saved its strongest words for the surge in fuel costs driven by crude oil’s recent run to around $125 a barrel.

“While we have dynamic fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices,” finance chief Alan Graf said. “This revised outlook assumes no additional increases to the current fuel price environment and no further weakening of the economy.” Shares fell 4% in postclose trading.

It has been another tough week for shareholders in Countrywide (CFC), the mortgage lender that agreed in January to sell itself under duress to Bank of America (BAC). Countrywide shares were down 19% for the week on Friday afternoon. The big hit came Monday, when a Friedman Billings Ramsey analyst said BofA should walk away from the deal in light of a filing last week that said BofA hadn’t decided whether it would guarantee Countrywide’s debt. Not everyone was persuaded by that argument, but Countrywide also came under fire in Congress. On Tuesday, Sen. Charles Schumer criticized the company’s handling of bankruptcy debts and questioned whether BofA should even be paying the agreed-upon $7 or so a share in stock.

The selloff had Countrywide shares trading Friday afternoon at a 28% discount to the implied value of Bank of America’s takeout offer. That spread suggests that some investors are betting the deal won’t get done at the agreed-upon terms of 0.1822 Bank of America share for each Countrywide share.

Still, the chart below, put together by Fortune’s Sarah Slobin, shows that the spread isn’t as wide as it was two months ago. The high remains 38% - reached March 17, the day after JPMorgan (JPM) agreed to buy Bear Stearns (BSC) for $2 a share, accelerating investors’ flight to the safety of Treasuries. With any luck, that’s a scene we won’t have to revisit anytime soon.