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By | Joe Fay 20th November 2007 12:28

Deutsche Telekom eyeing up EDS

Telco plotting grab at services giant

Deutsche Telekom could make a bid for services giant EDS in a bid to boost its own services business.

The two firms have had preliminary talks about a takeover, according to the Financial Times, which cites “people familiar with the situation”. A takeover could see EDS merged into DT’s T-Systems division, with the combined organisation subsequently floated, the FT said.

Such a deal would be a massive upset for the IT services industry, which some could argue was created in large part by EDS. It would also see the German government – which still controls a sizeable chunk of the former state-owned firm - sliding a finger into the IT pies of many other governments.

EDS’ market capitalisation is currently around $10.37bn, and any purchaser would be expected to pay a healthy premium on top of this. According to the FT, Deutsche Telekom would look to bring in a private equity partner to help finance any deal.

At its current $20.25 per share, EDS is worth a fraction of what it was around the turn of the decade, when its shares were in the $60 to $70 range.

Any signs that EDS was receptive to a takeover might be expected to flush out other suitors looking to expand their services operations.

Dell might be expected to throw its hat into the ring - the PC vendor has been looking for a more credible services offering, and to expand beyond its current direct sales strategy. It has over $11bn cash lying around on its balance sheet. More importantly, perhaps, it has former EDS alumni Steve Schuckenbrock heading up its current services operation. And most important of all, both firms are Texas-based.

Or perhaps someone from even further afield might decide to have a bite. EDS has already “best-shored” a significant amount of work to the sub-continent. Gaining both the EDS brand and the firm’s sales network across the world might be a tempting prize for the big Indian outsourcing groups. ®

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