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General Motors to spin off EDS group

ELECTRONIC Data Systems, the big computer services group courted by BT last year, is to be spun off by its parent, General Motors, and possibly merged with Sprint, the US telecoms group.

GM and Sprint confirmed yesterday that they were in talks about some form of strategic alliance involving EDS, which the car maker acquired from the Texas enterpreneur Ross Perot for dollars 2.5bn a decade ago.

A combination of the two companies would create a formidable player in the evolving information industry, with the power to deliver EDS's data-processing capability to corporate customers across the US and around the world.

The new partnership, with annual revenues of dollars 20bn, would be an instant rival to AT&T, the US telecoms and computing giant, and to the three-way alliance involving BT, the US long-distance carrier MCI and Nextel, the mobile communications group it bought into earlier this year.

But a merger or even an alliance involving an exchange of shares will require that GM first spins off EDS - now worth about dollars 15bn - as an independent company, an obstacle that pre-empted BT's plan to take a 25 per cent stake in EDS.

GM took the first step last week by turning over its claim on EDS profits - worth about dollars 6bn - to the car maker's badly underfunded pension plan.