Eamonn Kennedy, Richard Holway

As it stands, this story is just one of many such rumours constantly doing the rounds in an IT services market that is ripe for some serious supply-side consolidation. One factor giving this rumour more legs than usual is the involvement of the private equity firm, The Blackstone Group. Blackstone was one of three equity partners reported to have approached CSC with an offer last November, led by Lockheed Martin, the defence company with a large North American IT outsourcing business. The rumours also include a twist that would see HP buy a small stake initially and gradually buy out the equity firm(s) over time.

It's worth noting that Blackstone is having a busy time in the sector at the moment, with its $8bn bid for Affiliated Computer Services expected to be announced very soon.

Comment:

Without dwelling unduly on this rumour, acquiring all of CSC would boost HP's aspirations to be a leading, global outsourcer, and CSC's inherent financial and commercial prudence would no doubt find approval with HP's CEO, Mark Hurd. Conversely, when me met Hurd only a few weeks ago, he displayed no desire to increase HP's consulting capability (a large part of CSC's $14bn revenues) nor did he try to prepare any conceptual ground for such a disruptive move. If anything, he de-emphasised the role high-value services will play in his HP in the near-term. Additionally, Hurd's shareholders still wince at the notion of large acquisitions, and there remains some tidying up to do following the company's last foray into large-scale M&A.

Two years ago, this rumour took the shape of HP using its cash mountain to buy EDS. Three years before that, HP was in the market for PwC Consulting at around $18bn (many multiples of the price IBM subsequently paid). Many potential acquisitions in the IT services sector that make sense to the beancounters never see the light of day, in large part due to the risk of cultural divide between the two companies. Large acquisitions of services companies with different cultures have a long history of failure (think Capgemini and E&Y). But experience shows that overwhelming evidence of the failure of such acquisitions is unlikely to stop further attempts in the future!