Reuters News has reported that Hewlett-Packard Company (HP) is in discussions with technology outsourcing giant, Electronic Data Systems Corporation (EDS).  It is rumored that the deal would be worth some $12 billion to $13 billion to EDS.

If concluded the deal could put HP very close in rank to IBM as a provider of technology services. HP has not made this large an acquisition since it acquired Compaq for $19 billion in 2002.

Based on the discussions, EDS shares rose nearly 28 percent, with its market value currently at about $12 billion.  The deal is reported to be very close to worked out, with an announcement expected by the close of May 13th business.

Both EDS and HP have confirmed that they are in discussions pertaining to a complementary business deal.  HP and EDS currently collectively would have $39 billion in services revenue, second only to IBM’s $54 billion.

If HP manages to merge with EDS it would allow HP to better compete against IBM in pursuing large customers and in providing technical and professional services that are cost competitive with companies such as Computer Sciences Corp. The technical services business sector offers fairly stable and low-risk income with sizeable margins.

EDS reported a 62 percent decline in first quarter profit last month and its growth has been fairly stagnant during the past couple of years. EDS has also had to trim thousands of jobs in order to remain profitable.

HP has been looking for a way to become a force as a major services provider organization, and analysts predicted that the combination of the two companies would likely allow HP to be able to do this.