Hewlett-Packard could get around $5 billion from a sale of Electronic Data Systems, but it is unclear what sort of buyer would be willing to pony up that amount given the issues facing the business unit, one Wall Street analyst said Thursday.
"A strategic buyer might be difficult to find given the high price tag and questionable contract portfolio, while a private equity buyer could be deterred by the secular headwinds facing legacy IT outsourcing models," such as the shift to the cloud, Brian Alexander, director of technology research at Raymond James & Associates, St. Petersburg, Fla., said in a note to clients.
Based on analysis of comparable financial data from publicly-held competitor Computer Sciences Corp., Raymond James estimates "the sale could fetch around $5 billion."
[Related: HP Partners Wary Of Impact Of A Potential EDS Sale]
As CRN reported Wednesday, HP has been considering selling its EDS business, part of its HP Enterprise Services division, and even shopped it to potential buyers, including private equity firms, according to sources familiar with the matter.
HP has denied that this is the case, but Raymond James & Associates believes the company is looking to sell EDS.
"We do not doubt that HP is seeking a buyer despite comments to the contrary, as this is probably the business facing the greatest operational challenges in its portfolio," Alexander said in the research note.
EDS is not well-integrated with the rest of HP's businesses and operates as a standalone business within the company, which would make it easy to sell, sources familiar with the situation told CRN earlier this week. CEO Meg Whitman has expressed a desire to see HP move into higher margin services in areas like analytics, cloud computing and security, while EDS provides lower margin IT outsourcing and applications and business services.
"We just do not see who wants to absorb the headache, and these rumors now unfortunately highlight HP's desperation to shed the business rather than turning it around," Alexander said in the research note.
