Sale to HP will end EDS independence

Eight months into his tenure as CEO of Electronic Data Systems Corp., Ronald Rittenmeyer is overseeing the sale of the company, something he says he never planned."It just came together," Rittenmeyer said Tuesday during an interview.

The sale to Hewlett-Packard Co. is a milestone for a company that was started on a shoestring in 1962 by H. Ross Perot, who quit a sales job at IBM to work for himself. The company has remained independent for all but a few years when it was owned by General Motors Corp.

EDS will stay in Plano and keep "EDS" in its name, officials said. It even plans to continue sponsoring the annual EDS Byron Nelson pro golf tournament.

The company, which runs call centers and computer systems for big companies and government agencies, has a larger technology-services business than HP. Mark Hurd, HP's CEO, said EDS is "more mature" in that regard and has capabilities that HP's services unit lacks.

The impact of the deal on EDS' 137,000 employees is uncertain. Rod Bourgeois, an analyst with Sanford C. Bernstein & Co., said he expects some EDS jobs to disappear as the companies combine work forces.

In a conference call with analysts Tuesday, Hurd, in California, and Rittenmeyer, who was in New York, repeatedly used the word "synergies" to describe the benefits the combined company would see as it cuts overlapping costs.

"In terms of job cuts, we are continuing to streamline our work force at EDS," Rittenmeyer said during the conference call. "We've been doing that for some time ... there are always job adjustments."

In an interview with The Associated Press, Rittenmeyer said, "Employees who do a good job, who are good performers, don't have to worry about anything."

The CEO said the company is constantly evaluating employees and shedding underperformers.

"All this does is provide a catalyst for us to look perhaps a little deeper, a little wider," he said in the interview.

EDS practically invented the industry that came to be known as information-technology outsourcing. Perot, who went on to run for U.S. president in 1992 and 1996, hired many military veterans who generally came to work in white shirts, ties and short hair cuts.

Perot sold EDS to GM in 1984 for $2.5 billion. GM later bought out Perot's remaining shares for another $700 million, but it spun off EDS in 1996 for $500 million.

By then, it had been surpassed by IBM in technology-services revenue.

Rittenmeyer's predecessors Michael H. Jordan and Dick Brown each cut thousands of jobs and moved thousands more to low-cost countries, especially India. EDS now has 45,000 workers in what it calls "best-shore" locations, and plans to increase that number.

EDS has been the subject of takeover speculation for years. Deutsche Telekom AG was reported to be looking at it last year. Earlier rumors centered on Dell Inc. Neither company ever confirmed the reports.

Shareholders will vote on the HP deal. Rittenmeyer declined to say whether there were other offers.

"There are no obvious competing bids that may emerge," said David Grossman, an analyst with Thomas Weisel Partners, citing the $25 per share that HP will pay, which is about 30 percent higher than EDS shares traded Monday before news of the deal leaked.

The shares topped $70 in 2000 and 2001, but they haven't been at $25 since last July. Analysts said the EDS board might have decided a sale was the quickest way to get the price up.

"The board had a whole series of deliberations and conversations," beyond the challenge EDS faced lifting the stock price on its own, Rittenmeyer said in the interview. "I'm comfortable that our board made a decision with shareholders in mind first."

After Brown arrived in 1999, the company won many huge contracts and earned more than $1 billion a year from 2000 through 2002. But it lost $1.7 billion in 2003 due partly to a money-draining contract with the Navy, the stock plunged and the company faced shareholder lawsuits and a Securities and Exchange Commission investigation into its accounting practices.

Jordan, a retired Westinghouse CEO, was brought in to fix the problem contracts and cut costs. After two years of small profits, earnings grew in 2006 and 2007, and new work was coming in. Jordan stepped down in September, and Rittenmeyer was promoted from chief operating officer.

Civic leaders in Plano, where EDS moved from neighboring Dallas in 1993, are worried about the uncertainty surrounding a major taxpayer and supporter of its symphony and other nonprofits.

"The concern we'd have locally is the potential impact on the housing market with a loss of jobs," said Jamie Schell, the incoming chairman of the local chamber of commerce. "But maybe the result will be a more stable company."

For now, "it appears to be a great deal for the shareholders," said another chamber director, Jim Boswell, "and I'm sure many EDS employees living in Plano own EDS stock."