GM's data division to break free

Spin-off will give EDS more options for financing big service contracts, says Roger Trapp

THE PLAN to spin off Electronic Data Systems from the US car manufacturer General Motors could greatly increase competition in the highly lucrative facilities-management business, according to industry observers.

Last week's move to make the organisation that was founded by former US presidential hopeful Ross Perot an independent, publicly listed company is designed to give it greater flexibility to compete in the fast-growing computer-services market, according to its managers. Insiders claim it comes at a time when just about every large company and significant parts of the public sector are looking at out-sourcing non-core parts of their operations.

Although EDS is apparently not expecting any dramatic change in its business with GM, which last year accounted for a third of its revenues, some are suggesting that one advantage of the change might be the ability to bid for work from GM competitors such as Ford.

EDS, which is still based in Plano, Texas, despite being bought by Detroit- based GM for $2.5bn (pounds 1.6bn) in 1984, is best known in this country for agreeing a pounds 1bn contract for computer services with the Inland Revenue. It has also made similar deals with the Driver and Vehicle Licensing Centre and the Department of Social Security.

Some observers say the cost of winning these large contracts is so high that EDS needs greater freedom to find innovative ways of financing - hence the separation from GM.

"It's a great move for EDS," said one. "It takes their biggest client off their share register, which has always got to be good news."

It might also pit the company more closely against other US- based organisations that have been making great strides in this area. Andersen Consulting, the information-technology arm of Arthur Andersen, for example, earlier this month added the UK in-house accounting work of DuPont oil subsidiary Conoco to similar deals with the likes of BP.

However, Sema Group - the Anglo-French organisation that claims to be a truly European business and is growing strongly there and in the Far East - insists that it will not be affected by any change in the status of EDS.

Martin Trees, Sema's marketing director, said the key words for his organisation, which last year lifted sales by nearly a fifth to just under pounds 600m, were "collaborative and proactive". This enables it to adapt to different clients' needs, while EDS - in common with other US operations known for their strong cultures - tends to offer more of a standard approach. "There's room for both," he said.

However, if the bid EDS made for work from Lucas earlier this year is anything to go by, not all organisations can live with the American approach. After the deal fell through, the EDS team dismissed Lucas's views as "typical West Midlands automotive".

Meanwhile, one source said EDS - which in Mr Perot's day imposed a strict conformity that did not allow beards - was labelled "slick, blue-suited American", although the people involved in negotiations were British.

There are also doubts about whether the deal will actually take place. The tax-free stock swap behind the arrangement still requires approval from the tax authorities. The company is not expected to make a final decision until early next year.

Equally, although the consultancy side of EDS has recently linked up with the Chicago-based operation AT Kearney, GM has made a number of recent attempts to dispose of the whole operation. Talks with both BT and the US long-distance telephone company Sprint came to nothing.

One observer suggested that GM might be keen to dispose of EDS because it is no longer as cash-rich as it once was.