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Is EDS another Compaq?

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New York — The real question in the acquisition of EDS by Hewlett-Packard is, can a NORTH RIVER MANAGEMENT GRADE B company make the acquisition of a Grade D company accretive? Experience says it cannot. At an operational level, the mechanics of the two will be tough to integrate.

Hewlett-Packard has struggled mightily to get to where it is today and I have given CEO Mark Hurd much credit.


You can see large scale implementation of the data used to make these assessments in the Goldman Sachs report based on my system, PICKING CASH VELOCITY WINNERS.

Hurd’s management team may reason that applying H-P’s operational skills to EDS will improve its fundamentals — EDS’ North River Velocity of Cash Index shows that H-P’s sales operations, for example, are clearly superior — to leverage the differential sales multiples and make the deal accretive quickly. It may also reason that EDS operating margins have improved every year for the last five and that sales have finally begun to grow too.

Still, this deal is going against history, not with it, and will be hard to do. The last time H-P acquired a low grade company — Compaq — the CEO lost her job.

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