GM's computer giant ready to go it alone

Tax-free share exchange will give Electronic Data Systems the freedom to make its own way

General Motors, the US car manufacturer, announced yesterday that it plans to split off its Electronic Data Systems subsidiary in a tax-free exchange of stock to GM shareholders.

The move will make the computer services giant an independent, publicly listed company, which EDS management believes will give it more flexibility in competing in the fast-growing computer services market.

EDS, which does a lot of business in the UK, was acquired by GM for $2.5bn in 1984. The seller was the company's founder, Ross Perot, who later shot to worldwide fame with his run for the US presidency in 1992. EDS is a leader in providing computer services to large corporations, which are increasingly outsourcing functions such as payroll to specialised third parties. EDS is big in areas such as processing claims on behalf of insurance companies, helping operate reservation systems for airlines, cheque processing on behalf of banks, and dealing with the mountains of paperwork generated by both public and private health services.

EDS is a key player in the European computer services market, and 15,000 of its total 80,000 staff work in Europe. Clients include Lufthansa, Saab and Xerox. Earlier this year EDS signed a 10-year cheque-processing deal with the Royal Bank of Scotland. Last year EDS added the UK Inland Revenue to its client list, with the signing of a 10-year, pounds 1bn computer services contract.

Last year EDS made profits of $822m (pounds 514m) on total revenues of $10bn.

Some 35 per cent of this revenue was provided by GM, which is by far the largest customer for EDS services, outsourcing functions ranging from computer control systems for its car factory paint-sprayers to personnel records and payroll. A statement yesterday said that "in the event of a split-off GM and EDS would enter into a long-term agreement in which EDS would provide substantially the same information technology and other services for GM that it does today."

Several complications have yet to be resolved with regard to the terms of the split-off, including clearance from the US Internal Revenue Service to clear the deal as a tax-free exchange of stock. Under US tax law stock swaps are often tax-free, whereas in a cash deal GM would be taxed on its capital appreciation on the value of EDS. General Motors envisages an exchange of new EDS shares for General Motors Class E shares, which are closely linked to the performance of the EDS division and trade separately on the New York Stock Exchange under the ticker-tape symbol GME, alongside the main parent company shares. A large number of GME shares are owned by the pension fund for GM auto workers.

Yesterday's announcement followed a meeting of the GM board, which approved a recommendation by GM and EDS management to develop specific terms for the split-off. GM said yesterday that the various approvals involve numerous uncertainties, although the spin-off could occur in the first half of 1996. Yesterday the class E shares rose $3.375 to $47 in early trading, which on the basis of a one-for-one exchange would place a market capitalisation of around $22.7bn on the new, independent, EDS.

The market has been anticipating some sort of demerger of EDS for some time. Last year EDS was considering a link-up with the long-distance telephone company Sprint, but those talks fell through. GM management subsequently publicly aired the idea of spinning off EDS, which is currently a wholly owned subsidiary.

Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
ebooksAn unforgettable anthology of contemporary reportage
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Plenty to ponder: Amir Khan has had repeated problems with US immigration because of his Muslim faith and now American television may shun him
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments