Hewlett-Packard, Electronic Data Near Merger?

HP looks to expand its business services operation, something it has been trying to do for eight years.

Hewlett-Packard and Electronic Data Systems confirmed rumors that gripped the markets Monday afternoon that they are in advanced discussions about a possible business combination.

Both pointedly said there are no assurances that an agreement will be reached or a transaction concummated and declined further comment.

Such a deal, which Bloomberg News reported could be valued as high as $13 billion, would be HP’s largest since it bought Compaq Computer for $20 billion six years ago.

EDS provides technology consulting and outsourcing services. In fiscal 2007, HP’s services business accounted for $16.6 billion of its $104 billion in revenue, The Wall Street Journal pointed out. HP has been anxious to expand this business ever since its failed attempt to buy PricewaterhouseCoopers’ consulting division in 2000. Two years later, rival IBM bought the PwC unit.

HP has since made smaller acquisitions, including Mercury Interactive Corp. for $4.5 billion in 2006.

Observers think a merger of HP and EDS could trigger other deals as cash-rich companies try to buy smaller rivals whose stock prices are down from their highs. It also could spawn more so-called strategic mergers among companies in unrelated industries. Those would not be as dependent on a friendly credit market as deals involving private equity firms, which heavily drove the record deal volume in 2006 and early 2007.

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