HP said Tuesday morning that it has signed a deal to acquire IT outsourcer EDS for $13.9 billion, or $25.00 per share.

The deal has been approved by both companies' boards of directors, and is expected to close in the second half of this year.  (See our FAQ for details on what the deal means for enterprises and the IT services industry.)

HP said it will more than double its services revenue.

The deal will greatly expand HP's IT services business and catapult it to the number two spot close behind IBM, whose Global Technology Services division has long been a strong profit generator for the company.

Read EDS CEO Rittenmeyer's e-mail to EDS employees

"I see [the acquisition] as an attempt by HP to really go head to head with IBM in a much more meaningful way, especially in technology services and IT outsourcing," Dana Stifler, research director with AMR Research, said Monday, while the two companies were still in talks.

The worldwide market for IT services was worth $748 billion in 2007, an increase of 10.5 percent from the year before, according to recent figures from Gartner. IBM led the market with about $54 billion in revenue, followed by EDS with $22 billion. HP was in fifth place with revenue of $17 billion, behind Accenture and Fujitsu.

Buying EDS will grow HP's services business and allow it to offer a wider range of services to attract large business customers. EDS is strong in infrastructure management services and also custom application services, where it helps companies to design, integrate and manage applications.

EDS is less strong in providing services for packaged applications, however, and the acquisition will not give HP a big lift in the type of business consulting services delivered to line managers and business executives either, Stiffler said Monday.

HP has been keen to expand its services business for years, and EDS is not its first attempt to do so. In 2000 HP dropped plans to acquire PricewaterhouseCoopers Consulting, which was ultimately scooped up by IBM two years later, for $3.5 billion.

HP's services business generated only 16 percent of its total 2007 revenue of $104.3 billion, while IBM makes more than half of its annual revenue from services.

Buying EDS will give HP the muscle it needs to become a serious threat to IBM's services business, said Kathryn Hale, research vice president at Gartner, also speaking before the companies confirmed the deal. HP has the resources and the wherewithal to acquire EDS and improve its business results, she added.

The IDG News Service is a Network World affiliate.

Whitepapers

• Secure Wireless Printing Options
• Improve Virtual Storage TCO by Comparing Vendors
• Making IT Invisible
• Best Practices for VMware ESX Server
• Virtualizing Storage for VMware Success
• Configuration Assessment: Choosing the Right Solution

View more DATA CENTER whitepapers

Webcasts

• Branch Office Trends and Best Practices
• Best Practices for Deploying WAN Optimization for Disaster Recovery
• Tips and Techniques for Remote Data Backup and Delivery
• WAN Optimization Landscape
• Oracle Database 11g: Advances in Compression, Real Application Testing and Data Guard
• Solutions to the Toughest IT Challenges in Remote Offices

View more DATA CENTER webcasts

Special Reports

• Executive Guide: Storage Heats Up
• Data Centers: At the center of the action
• Executive Guide: Virtualization Reality Check
• Executive Guide: Data Center Decisions
• Get More From Your WAN
• Network World Executive Guide: Perfecting Application Performance Management

View more DATA CENTER special reports