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EDS Merger Is Deja Vu for H-P Investors

SAN FRANCISCO -- Wall Street loves to second-guess Hewlett-Packard's (HPQ - Get Report) mega-deals.

The company's shares plunged 35% in the weeks following the announcement of its intention to acquire Compaq for $25 billion in stock in 2001, as investors questioned the wisdom of combining the two PC makers.

And H-P's move to acquire technology services firm EDS (EDS) for $13.9 billion on Tuesday -- its largest deal since Compaq -- did not play much better among investors.

Shares of H-P sank 6.4%, or $2.99, to $43.84 in midday trading.

The move will reshape the market for technology consulting and outsourcing services, as H-P turns up the competition on IBM (IBM - Get Report), the No.1 player in the services market.

H-P said pairing up with EDS will allow it to provide a broader menu of services to business customers around the world that are increasingly looking to outsource various parts of their operations.

And in a business where size matters, the two companies' combined revenue of $38 billion creates a clear No.2 player in the market.

"If you look at where we were from a market share point of view, if you try and do this organically it just takes too long," said H-P Chief Strategy and Technology Officer Shane Robison in an interview with "The opportunity is there today and we want to capture it."

But the grand vision was overshadowed by some of the deal's less-appealing details.
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