EDS/MCI $12.4B outsourcing deal nailed down

Electronic Data Systems and MCI WorldCom said on Monday they've signed a $US12.4 billion dual outsourcing deal. MCI WorldCom will outsource part of its IT operations to EDS as of February 4 in a $6.4 billion arrangement, while EDS will outsource part of its global network operations by year's end for about $6 billion.

The huge 10-year, two-way outsourcing deal was first announced in February and was originally expected to be finalised by May. At the time, the deal was estimated at up to $17 billion, including the acquisition by EDS of MCI WorldCom's IT services arm, MCI Systemhouse, for $1.65 billion. In fact, the deal came out toward the low end of the original range.

Negotiations to finalise the arrangement hit delays, leading to rumors that the huge outsourcing deal might fall through. Also, some analysts had speculated that the proposed merger of MCI WorldCom with Sprint would interfere with the plans.

But Dan Zadorozny, client executive for MCI WorldCom at EDS, denied the negotiations were ever in serious trouble. He said the deal just turned out to be more complex than originally anticipated.

Though most of MCI WorldCom's IT operations are centralised in four locations, there were actually 15 locations in total. During the working out of the deal, it emerged that the number and diversity of computer systems was larger than expected. In all, the deal now encompasses 2,500 midrange systems, including systems from Hewlett-Packard, Sun Microsystems, the former Digital Equipment Corp. and others. There were also 80 business applications, at least one of which had not even been developed at the time the original agreement was announced in February. Another time-consuming task was to put in place detailed metrics, Zadorozny said.

The proposed merger of MCI WorldCom with Sprint didn't complicate negotiations, said Zadorozny, because both partners were anxious to close the deal.

About 1,000 EDS employees will transfer to MCI WorldCom, while 1,300 MCI WorldCom workers will move to EDS.

Cynthia Doyle, an analyst at International Data Corp, said she wasn't surprised the deal took longer than expected to complete. "It might even be a good sign that they've done this in such detail, because it bodes well for the future [of the arrangement]," Doyle said.

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