HP confirms EDS deal

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.