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HP-EDS merger to cause big ripples

HP-EDS merger to cause big ripples

Australia's $16.9 billion computer services market is headed for a shake-up as Hewlett-Packard chases a $US12.6 billion merger with global outsourcing heavyweight Electronic Data Systems.

Australia's $16.9 billion computer services market is headed for a shake-up as Hewlett-Packard chases a $US12.6 billion ($13.4 billion) merger with global outsourcing heavyweight Electronic Data Systems. HP and EDS yesterday confirmed they were in "advanced discussions" about a possible merger that would have implications for major local customers of both companies, which include the Commonwealth Bank of Australia, Australian Taxation Office and Bank of Queensland.

[According to a Computerworld NZ report, HP is the largest ICT supplier in New Zealand by revenue, not counting telcos, while EDS is the largest ICT employer. HP reported local revenue of $602 million in the year to October 2007, while EDS reported $359 million in its latest local report, for December 2006. A merger or buyout, therefore, would create a near $1 billion operation in NZ.]

An acquisition of EDS by HP would also vault the computer hardware and software maker to the top of the ladder of leading technology services businesses in Australia.

Local representatives of HP and EDS yesterday declined to comment but the subsidiaries' parent companies have said a deal might be finalised as early as this week.

HP and EDS executives in the US did not provide any further information on the merger talks.

"We don't have any comment on the matter unless and until a definitive agreement is entered into, and there are no guarantees that will happen," an EDS Australia spokeswoman said.

With revenue of $1.17 billion in 2007, EDS is Australia's second-largest computer services business, behind IBM.

Hewlett-Packard's local arm recorded revenue of $3.22 billion last year, giving the companies a combined annual Australian turnover of $4.39 billion, outstripping the $3.96 billion in sales IBM booked locally last year.

The combined entity would employ well over 6000 people in Australia and New Zealand.

But according to technology market researcher Gartner, a merged HP and EDS would not knock IBM off its perch as the country's number one supplier of information technology services.

In 2007, IBM grabbed 13.1 per cent of the local services market ahead of EDS in second place with 6.7 per cent and HP in sixth place with just a 3.43 per cent share.

Computer Sciences Corp was Australia's third-biggest technology services provider with 6.44 per cent of the market followed by Accenture and Salmat with 4.31 per cent and 4.09 per cent respectively.

HP's comparatively small share of the market reflects the difficulty the company has faced augmenting sales of low-margin hardware products such as PCs and printers that make up much of its business with more profitable services deals.

In 2000, the company considered acquiring PricewaterhouseCoopers Consulting for $US18 billion but dropped the bid and instead in 2002 acquired Compaq Computer for $US19 billion.

At the time, analysts noted that the Compaq acquisition did little to broaden HP's technology services revenue base.

IBM, meanwhile, acquired PwC Consulting for $US3.5 billion in 2002.

CBA yesterday declined to comment on the potential impact of the merger on its business.

EDS provides desktop computer, server and mainframe outsourcing services to CBA under a pair of contracts worth a combined value of $935 million over five years.

The merger of HP and EDS, if it goes ahead, may cause complications for EDS Australia's bid to retain as much of its $2 billion IT outsourcing relationship with the ATO as it possibly can. EDS's contract with the ATO expires in 2010 and the agency is now retendering its technology services in a series of deals worth $1 billion over five years.

KEY POINTS

* They would have a combined annual Australian turnover of $4.39 billion.

* A merger could complicate some current tender negotiations.

Fairfax Business Media

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