HP in $13.9bn challenge to IBM

Hewlett-Packard (HP) has struck a deal to buy the information technology provider Electronic Data Systems (EDS) for $13.9bn (£7.2bn).

The move will help HP compete with IBM and is HP's biggest acquisition since 2002 when it bought Compaq for $19bn.

HP shares fell on fears the firm was paying over the odds for EDS.

EDS is a Texas-based information technology services company and HP is one of its biggest customers. Britain's NHS is also a client.

The deal values EDS at $25 per share, a 33% premium to its Friday closing price, before reports of talks sent the stock soaring on Monday.

'A little pricey'

HP hopes the deal will help it to compete with IBM in the technology services business.

"The combination of HP and EDS will create a leading force in global IT services," said Mark Hurd, HP chairman and chief executive.

Some analysts questioned whether HP was paying too much for a relatively slow-growing company.

"I would say the deal, in my view, is a little pricey but we'd have to look at the details," said Jeff Embersits, chief investment officer of Shareholder Value Management.

HP shares fell 5.62% to $44.20 in morning trade in New York.

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