EDS, MCI WorldCom in asset swap

Electronic Data Systems (EDS) and MCI WorldCom yesterday announced that they are entering into a complex deal valued at $US17 billion that will shift assets, including service contracts and more than 13,000 staff, between the two companies.

The aim of the deal is to enable both companies to better position themselves in the electronic business and global communications services arenas, EDS and MCI WorldCom officials said.

Company executives said they cannot guarantee there will be no layoffs as a result of the deal, as there is likely to be crossover in some jobs.

The complex deal contains four main pieces:

MCI WorldCom will outsource much of its IT services to EDS including the bulk of all applications development, maintenance agreements and infrastructure services. The companies said that the outsourcing arrangement is the largest ever such deal in the telecom sector, valued at between $5 billion to $7 billion over its 10-year span.

EDS will outsource most of its global network to MCI WorldCom with the communications company becoming responsible for the management of voice and data communications services for both EDS and its customers. MCI WorldCom is expected to profit by the deal to the tune of between $6 billion and $8.5 billion over the coming decade.

EDS will purchase MCI WorldCom's IT services arm, MCI Systemhouse, for $1.65 billion in cash. Systemhouse reported $1.7 billion in revenues last year and will be integrated into EDS' existing infrastructure. Systemhouse currently has 120 offices worldwide, employing around 9000 staff.

MCI WorldCom and EDS will work together on developing network service offerings aimed at business and government users worldwide.

The deal will involve more than 12,000 MCI WorldCom and Systemhouse staff, mostly in the US and Canada, joining EDS, while around 1000 EDS employees from the company's networking operations worldwide will be asked to join MCI WorldCom, officials said.

Rumours of a tie-up between the two companies began to circulate in December when the duo were reportedly in talks to set up a joint venture.

Around the time of those rumours, MCI WorldCom announced that it would lay off around 2000 of its US workers as of December 31. The staff cuts largely targeted the company's network operations where duplications existed following the $US40 billion acquisition of MCI Communications by WorldCom, which closed in September.

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