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.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine