Hewlett-Packard is to brave the debt markets in the worst credit crisis for a decade to raise capital for its $13.9 billion (£7.1 billion) cash offer for Electronic Data Systems (EDS), the computer services company founded by Ross Perot.

HP is paying a 32 per cent cash premium for a technology services company in an attempt to compete with IBM in the highly lucrative computer services industry. The Silicon Valley printer giant announced yesterday an agreed $13.9 billion cash offer for EDS. The deal, which has taken several months to complete, values EDS at $25 a share, compared with the company’s closing stock price on Friday, the day before the talks were made public, of $18.85.

HP said that it would fund the deal from existing cash reserves and from “incremental” debt. A company official said that HP was “going to the market” to raise the remaining funds. She would not disclose how much cash HP was planning to raise. In a statement, Fitch, the credit rating agency, said that it “expects the vast majority of the purchase price to be debt-financed”.

The deal marks the first significant deal reached by Mark Hurd, the chief executive of HP, who succeeded Carly Fiorina after she was dismissed three years ago.

HP estimates that the deal, which it expects to be completed in the second half of this year, will “more than double” the size of its business services operation, which generated revenues of $16.6 billion last year. Computer services attract high profit margins. One industry insider, who declined to be named, said that such businesses typically enjoy margins of between 20 per cent and 30 per cent — far higher than those derived from selling computer hardware.

He said: “In an economic slowdown, these businesses become even more attractive. What is happening across the industry is that companies are looking down their pipeline and seeing a slowdown in sales. When things are soft, companies try to eke out as much value as possible from their infrastructure. They make do with what they have, rather than buying new equipment. Typically, they pay the likes of IBM and EDS as consultants on how to extract more value from their existing IT.”

In its research note, Fitch added: “[We] believe HP’s proposed acquisition of EDS will significantly expand the scale, geographic diversity and breadth of service line offerings, especially for higher growth application services, of HP’s existing information technology (IT) services business. In addition, HP has the opportunity to significantly reduce the overhead cost structure of EDS.”

The deal orchestrated by Mr Hurd underlines the company’s break from its recent turbulent past. Three years ago HP endured the worst episode in its history, dismissing Ms Fiorina, its celebrity chief executive, ousting Patricia Dunn, its chairwoman, and becoming embroiled in a phone-bugging and identity-theft scandal in which members of the board had to account for their secret surveillance of one another in front of Congress. HP shares fell by $2.56, nearly 6 per cent, to close at $44.27 amid fears that the company may have overpaid. EDS shares rose by 26 cents to end the day at $24.34, close to HP’s $25-a-share offer price, indicating that Wall Street does not expect a counter-offer.

EDS factfile

— Electronic Data Services was founded by Ross Perot, the former US presidential candidate

— IT contract deals in the UK include work for the MoD and the Department for Work and Pensions

HP factfile

— Under Carly Fiorina HP bought Compaq for $19 billion in 2002

— Three years ago, it dismissed Fiorina over her perceived failure of group strategy

— It is the world’s largest printer manufacturer

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