Key McDonnell Functions Go to IBM
McDonnell Douglas announced Tuesday that it would contract out its internal data-processing and telecommunications operations to International Business Machines and transfer 1,450 McDonnell white-collar employees to IBM--including 650 in Southern California.
McDonnell released few financial details of the arrangement, but securities analyst Howard Rubel of C.J. Lawrence, Morgan Grenfell said the move would provide McDonnell with a cash payment and a capital gain over the duration of the 10-year deal.
For the record:
12:00 a.m. Dec. 31, 1992 For the Record
Los Angeles Times Thursday December 31, 1992 Home Edition Business Part D Page 2 Column 3 Financial Desk 2 inches; 56 words Type of Material: Correction
Electronic Data Systems--Electronic Data Systems considered bidding for a contract to run McDonnell Douglas’ computer and telecommunications operations but never submitted a formal bid. Because of an erroneous report from Associated Press, an article in Wednesday’s editions incorrectly characterized EDS efforts to win the contract, which was awarded to International Business Machines.
The cash payment is believed to be somewhat more than $200 million, about half of which would show up on the firm’s fourth-quarter earnings statement and balance sheet.
The arrangement is attractive to IBM because it captures $3 billion in revenue for the company over 10 years. It also provides McDonnell with an innovative source of cash at a time when it is increasing its bank borrowings.
The deal is the largest computer outsourcing agreement ever won by IBM and one of the biggest in the industry. IBM beat out Electronic Data Systems, a unit of General Motors.
The contract was signed by IBM’s Integrated Systems Solutions Corp., established last year to provide computer outsourcing services. IBM would offer jobs to all 1,450 McDonnell employees, a McDonnell spokesman said.
Herbert Lanese, McDonnell’s chief financial officer, said the IBM agreement “eliminates the need for ongoing investment in an area that is peripheral to our core aerospace business.”
These services were previously handled by McDonnell Douglas Aerospace Information Services. The IBM deal leaves McDonnell with only one piece--its systems integration unit--of its former information system business, which the company has been selling off.
