The deal, if it is sealed, would create a hybrid telecommunications and computer-services giant that could one day rewrite the rules for the information business. For EDS that would fulfill a dream: severing its ties to the automaker for a chance to compete in the alluring, if murky, multimedia arena. The $9 billion company is already the leader in ““outsourcing,’’ in which companies turn over their computer operations to outside experts. Since 1986, when Perot took a buyout from GM to end their ongoing brawl, his successor Lester Alberthal has proven EDS can thrive without the charismatic billionaire and coexist more peacefully with Detroit. Now, for the first time in 32 years, the company will face life without either Perot’s cheerleading or the muscle of the world’s largest carmaker.
EDS executives say that breaking those ties – and forming a new one with Sprint – is the surest path to power. Their plan is to join the ranks of AT&T and Time Warner – Masters of the Universe of converging technologies. EDS has already begun to make small inroads into video delivery; its Spectradyne joint venture brings movies-on-demand to hotel rooms. In tandem with Apple Computer, it will offer consumers home shopping from catalogs on CD-ROM. With its expertise in computer networks, EDS hopes to emerge as the most able traffic cop in the age of interactivity.
Even Perot couldn’t have imagined what would become of the pioneering data-processing company he started in 1962 with $1,000. A former naval officer who sold computers for IBM, he hired most of his employees fresh from the service. He paid them poorly, instituted a strict dress code and forbade them from ““living in sin.’’ But he also inspired entrepreneurial spirit and unshakable loyalty. By the time he sold out to GM for $2.5 billion, EDS had revenues of $800 million a year and a reputation for overhauling big computer systems. But the GM match was edgy from the start. CEO Roger Smith bought EDS for GM’s personal use – to integrate all of its systems worldwide. The vision never materialized. EDS coordinated GM’s computers, but couldn’t figure out how to service factory floor machinery. And then there was Perot himself, who began to tell the world how badly GM was managed. Even after he was paid to go away, he told reporters that the $700 million payoff was a rip-off for GM shareholders.
While several top members of Perot’s posse rode away with him, most stayed, weathering his accusations of disloyalty. GM chose Alberthal, a Perot protege who had risen to president, as the company’s new CEO. He has turned out to be the anti-Perot. Stout and professorial, he shuns attention and spends his occasional free weekends on his ranch, breeding rare hornless cattle. He replaced Perot’s autocratic style with a nine-member council that oversees 28 top executives. ““Ross could never have relinquished control like that,’’ says Susan Scrupski, who worked for Perot and now publishes an industry newsletter. EDS reduced reliance on GM contracts, which have lower profit margins than outside accounts. When Perot left, more than 70 percent of EDS revenue came from the carmaker; today GM accounts for only one third.
Still, EDS remains nearly as buttoned down as Perot left it. That’s no surprise. It’s still run largely by for-mer military men who stud-ied at the master’s knee and only two of its 40 top executives are women. The strict dress code for men – dark suits, white shirts, black lace-up shoes and no facial hair – is no longer handed out in writ-ing to new employees, but those who want to get ahead follow it closely. Women still don’t dare don pants. ““You don’t even wear tassels on your shoes,’’ says Greg Jacobsen, a former executive who now works for a competitor. In the early 1990s, Alberthal was reportedly concerned that EDS had no post-Perot identity, so he ran a stylish TV campaign that showed the world whizzing past from the window of a car. But the spots barely mentioned the company’s name and failed to lift it from obscurity. To drum up esprit de corps, he even donned silly sunglasses for an in-house video, singing, ““The future’s so bright, we’ve got to wear shades.’’ But in the end, he returned to his own style. ““He seems mild-mannered,’’ says a former executive. ““But he used to decorate his office with sharks.''
He will need a killer instinct to move the company forward if there’s a break with GM. It faces mounting competition, especially from IBM’s computer-services division. And it isn’t up to speed on personal-computer networks, which are quickly replacing mainframes. The Sprint merger is expected to give a boost, especially with customers looking for one-stop shopping for both telecommunications and data service.
But some observers, jaded by the failed deal between Bell Atlantic’s chief Ray Smith and John Malone of Tele-Communications Inc., say it will never happen. They doubt Alberthal and Sprint chairman William Esrey will find a way to share power. Instead they predict that the merger will be scaled down to a more modest contractual agreement or a small-scale stock swap. But insiders say Alberthal believes a true merger is critical to EDS’s future. Not only to shore up its top spot in outsourcing, but to grow into an ““information utility’’ in the next decade.
The time for such a deal is right as far as GM is concerned. During the recession, the automaker vowed never to give the profitable unit its freedom. That stance helped sink a potential merger with British Telecom last year. But now that people are buying cars again, industry experts say GM wants the Internal Revenue Service to approve a tax-free spinoff of EDS so it can use its share of the proceeds to plug a huge shortfall in its pension fund. The machinations will buy EDS its liberty. GM has even agreed to sign a 10-year outsourcing contract to provide a cushion for the transition. EDS may at last shake off the shackles. But now, it won’t have Perot or GM to blame if it fails to soar high enough to stay on top.
PHOTO: “The future’s so bright we’ve got to wear shades’: EDS chief executive Les Alberthal at his Granbury, Texas, ranch
EDS: FROM PEROT TO SPRINT
PAPER BILLIONAIRE: Ross Perot launches EDS with $1,000 in 1962. Four years later the former IBM salesman takes the company public – at $16.50 a share – and fetches $10.7 million. Still, Perot shrewdly retains a whopping 81 percent stake in the computer-services company. The tough-talking Texan becomes a billionaire a year later after EDS’s stock soars to $150 a share.
OPPOSITES ATTRACT: In 1984, Perot peddles EDS to General Motors for $2.5 billion and continues as the firm’s chairman. EDS triples its sales to $3.4 billion, because more than 70 percent of its business is generated from one account – GM and Hughes Aircraft, which GM acquired for $5 billion in 1985.
OPPOSITES BREAK UP: Strains between Perot and GM CEO Roger Smith surface in late 1986 when it is reported that GM officials conducted secret talks to sell its EDS division to AT&T. GM denies the reports, but Smith acknowledges tensions with Perot. To end the boardroom war, the directors vote to buy out Perot for $700 million. Lester Alberthal takes over as CEO of EDS.
PEROT’S REVENGE: Perot starts Perot Systems – and is promptly sued by EDS in 1988 for breaking his promise not to compete with his former company. Perot countersues and vows: ““I’ll rip their heads off.’’ A Virginia court rules in Perot’s favor. The judge allows him to compete with EDS if he doesn’t pocket any profits for a year.
NEW PARTNERS: In 1993, merger talks between EDS and British Telecom break down. But now EDS announces that it may have finally found a way into the telecommunications business: a merger with Sprint. Meanwhile, analysts say, GM may be planning a tax-free spinoff of EDS to help finance its pension plan.
