EDS, P&G confirm that they’re back in talks

Procter & Gamble Co. has confirmed that outsourcing vendor Electronic Data Systems Corp. is again negotiating with it on a major outsourcing deal, just two months after EDS walked away from earlier talks.

The announcement came after reports began circulating earlier this week that the two companies were again in negotiations.

EDS spokesperson John Clendening also confirmed that the companies are back at the table trying to work out a global business services agreement. But he refused to provide further details.

The news that EDS has re-emerged came after the company that was most recently seeking the lucrative contract, Affiliated Computer Services Inc. (ACS), took itself out of the running, citing differences between the businesses operations and philosophies.

At stake is what could be one of the largest outsourcing deals in the history of IT services.

In an unusual flip-flop, Plano, Tex.-based EDS came back to talk with Cincinnati-based consumer products maker P&G more than two weeks ago to renew discussions about a possible outsourcing deal, a P&G spokesman said yesterday. The EDS overture to P&G was interesting enough that the two companies acknowledge they are continuing negotiations and could be “days away” from a deal.

The P&G spokesperson said the EDS talks began before Dallas-based ACS announced that it had given up on a deal.

“There were just a number of differences in operations and other things where we could not reach agreement,” the spokesperson said of the failed negotiations with ACS.

Lesley Pool, an ACS spokesperson, said it’s “unlikely” her company would return to the table with P&G now. “At the completion of [a detailed] analysis, we realized that P&G [IT operations] just wasn’t a good acquisition for us,” Pool said. ACS looked at P&G’s financial practices, analyzed its IT systems, looked at service levels and growth potential and even looked at how P&G IT workers would view a potential outsourcing arrangement with ACS, Pool said.

“The synergies were not there,” she said. “It was all of those issues that when we put them together we felt this just doesn’t make sense.”

The issue was “never about money,” she said. ACS has completed about 60 IT department acquisitions since 1988, she said, including Washington-based Lockheed Martin IMS last year.

Analysts have estimated the value of the P&G contract at anywhere between US$4 billion and US$10 billion over eight to 10 years.

It wasn’t immediately clear why EDS’s top executives changed their minds about the P&G deal. In July, EDS CEO Dick Brown said in a conference call with analysts that giving up on the deal “was not an easy decision to make” but that “the financial model, especially related to the acquisition cost, simply didn’t make financial sense as structured for EDS, and we withdrew.”

In a note published on July 2, J.P. Morgan Securities Inc. analysts praised EDS for its decision and said they estimated the winner of the contract would have to invest US$1 billion or more to acquire the P&G assets. “We believe EDS is doing the right thing by walking away,” the note stated.

– With files from Juan Carlos Perez, IDG News Service