HP has signed a deal to buy outsourcing giant EDS for US$13.9 billion.

While HP confirmed yesterday that it had entered discussions with EDS regarding a possible "business combination", it was not expected that both companies would sign off on an acquisition so quickly.

Nevertheless, EDS has wholeheartedly agreed to the US$13.9 billion purchase, which will in effect expand HP's IT services business, catapulting it to the number two spot close behind IBM.

"Today is a historic day for the future of all of us at EDS, our valued clients, our shareholders and the entire IT industry," wrote EDS CEO Ron Rittenmeyer in an email to the company's worldwide staff.

"This transaction would be the largest ever in the IT services market and would create a formidable global competitor."

According to recent figures from Gartner, the worldwide market for IT services was worth $748 billion in 2007. IBM led the market with about $54 billion in revenue, followed by EDS with $22 billion. HP was in fifth place with revenue of $17 billion, behind Accenture and Fujitsu.

The buy will give HP a much needed revenue boost in the services market where its services business generated only 16 percent of its total 2007 revenue of $104.3 billion. IBM on the other hand, makes more than half of its annual revenue from services.

"The combination of HP and EDS will create a leading force in global IT services," said HP chairman Mark Hurd.

"Together we will be a stronger business partner, delivering customers the broadest, most competitive portfolio of products and services in the industry."

Once the transaction is finalised in the second half of the year, HP will establish a new business group and brand it EDS.

EDS’s Rittenmeyer emphasised the importance of his company’s brand and moved to allay employee fears that EDS would be assimilated under HP's banner.

"EDS would retain the brand all of you have worked so hard to build over the last 45 years. EDS headquarters will remain in Plano and I plan to continue as chairman, president and CEO of this new business group," he said.