Hewlett-Packard is buying Electronic Data Systems for $12.6 billion in a deal that will create the second largest technology services provider behind IBM.

HP will pay $25 per share in cash for EDS, nearly a 25% premium to Friday's closing price, which pioneered the concept of running computer systems and providing other high-tech help for large companies and government agencies.

It's a field dominated by IBM, which generated $54 billion in revenue from technology services last year. HP's technology services revenue will more than double to more than $38 billion with the addition of EDS, which had $22 billion in revenue last year.

The deal is expected to close during the second half of last year and begin to boost HP's profit in its fiscal year ending in October 2010.

Once the marriage is completed, HP estimates it will have about a 7 percent share of the technology service market compared with IBM's 10 percent share. The deal will enable HP to leapfrog Fujitsu and Accenture in the niche.

To make sure the EDS takeover pays off, HP indicated it will make significant layoffs as it eliminates overlapping jobs and other expenses. In Tuesday conference calls with media and analysts, HP Chief Executive Mark Hurd and EDS CEO Ronald Rittenmeyer declined to estimate how many workers might lose their jobs.

"There are obviously going to be some changes," said Rittenmeyer, who will run the combined technology services unit and report directly to Hurd.

Analysts repeatedly grilled Hurd on why he was willing to pay so much for EDS, given that the company's stock price had fallen by about 30% over the past year before news of the deal leaked out late Monday.

Some analysts expressed concern that EDS will become a drag on HP's revenue growth while others indicated they believed the company would have been better off spending its money buying an assortment of smaller software makers.

HP said the EDS acquisition had an "enterprise value" of $13.9 billion and didn't immediately explain what that figure included. But based on 502.6 million EDS shares outstanding as of April 25, the acquisition would be worth $12.6 billion.