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Hewlett-Packard Gets a Tummy Ache

Rich Smith (TMFDitty)
May 14, 2008

Welcome, investors, to "Breakfast With the Fool." You're just in time -- and in luck! It's Omelet Day, and today we have a whole mess of toppings for your culinary pleasure. Take your pick, grab some coffee, and let's skim through the morning papers together.

Hewlett-Packard (NYSE: HPQ  ) won't be joining us for breakfast this morning. As you may have heard, Hewlett-Packard ate rival IT specialist EDS (NYSE: EDS  ) yesterday, and now HP is feeling a little queasy this morning. Read Dr. Anders Bylund's prognosis.

What intrigues me about this deal isn't its rationale (getting a leg up on IBM (NYSE: IBM  ) ), or its price (too high). No, what grabs my attention is how Mr. Market reacted to it. You see, HP is paying $14 billion for EDS. So would anyone like to guess how much market cap HP lost when the news broke? Extra cheese for the omelet of anyone who guessed: $14 billion. That's right, folks. Investors are valuing a combined HP-EDS at the same market cap as HP has alone. So does this mean you can buy HP today and get EDS for free, or does it mean EDS is worthless?

Hmm. Maybe both?

Bernanke's funny feeling
And speaking of queasy feelings, maybe whatever HP has come down with is catching. Appearing at a conference yesterday, Federal Reserve Chairman Ben Bernanke opined that conditions in the financial markets are still "far from normal." (Um, duh.) Specifically, Helicopter Ben is concerned that despite his multiple monetary airdrops, "pressures in short-term-funding markets persist."

To which this Fool replies: Good. Seems to me it was manic lending that got us into this fix in the first place. It's about time banks started showing a bit more banker-like reserve.

I'm rubber. You're glue.
In other news, a legal brouhaha is a-brewing over in dot-com land between classified advertiser Craigslist and minority shareholder eBay (