Analysts Split on HP-EDS Deal

5/13 - "Clearly, the Street is not crazy about Hewlett-Packard’s (HPQ) plan to acquired Electronic Data Systems (EDS). In two days, the Street has knocked about 10% off HP’s stock price, chopping its market cap by about $12.5 billion, almost equal to the $13.9 billion deal price. The obvious question is, why?...And the answer is, there are several reasons."

"Toni Sacconaghi, an analyst at Bernstein Research, notes that since 2002, EDS has generated annual revenue growth of just 0.4% versus 8% for HP. And he notes that gross margins at EDS are around 15%, versus 24% for HP. “Given that we do not believe HP will be able to materially improve either revenue growth or gross margins,” he writes, “the acquisition is likely to result in some multiple compression over time even though the deal is accretive and HP has the opportunity to boost EDS’ operating margins from cu...