HP investors ride Hurd on EDS report
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.
I think HP purchasing EDS would be a very sound resolution infact. EDS for years as suffered from poor leadership. With the absence Alberthal the name of the game for any new CEO was to bleed the company… Brown then Jordan and now Rittenmeyer (though he hasn’t been at the reigns for too long)
2 or 3 were outsiders brought in by highly dysfunctional board. This company use to be one of prestige one people marveled at and had a culture of innovation.
For employees at EDS they must be not be weary as some of that glamor is bound to return when HP re-ignites the burners.
EDS has several key strategic relationships as an integrator they have talent that companies have been preying on for years.
EDS computer store struggles in the market place because its portfolio is no longer as robust as it once was. The business has changed and they failed to move completely with it. They headed straight into BPO solutions. It wasn’t EDS as a hole that did this it was those at the top. Many business unit leaders screamed for change but were met with succession upon succession of corporate re-structuring and re-organization.
This will have IBM listening up. HP Services + EDS results in a 30 + billion dollar business unit (and that is modest at best). With the cost savings that HP can bring to EDS via streamlining business processes and cutting costs, HP stands to win big on this…
And so does EDS
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This proposed acquisition of EDS by HP smacks of “deja vu” all over again - recall Compaq acqusition? Compaq was bleeding red, and one did not have to have an MBA to know that acquistion was borne out of no financial analysis but the “sheer ego of Carly Fiorina!” The integration of EDS and HP culturally seems like a NIGHTMARE!! I was a Managing Consultant at HP and left after the Compaq acquisition. EDS is known for some “unsavory” business tactics, and a culture “very unlike” what pertains in HP. Who knows, may be it will work out? Earleir in my career, I saw the AT&T acquisition of NCR, and this reminds me of that episode, or can I say “B” movie? For the uninitiated, this could be a “Pump & Dump” in the FINAL end game!!!