EDS to Provide Services to BofA
Bank of America Corp. said Thursday that it agreed to let Electronic Data Systems Corp. provide computer services to the No. 3 U.S. banking company in a 10-year deal worth $4.5 billion.
News of deal sent EDS’ shares up almost $1 to $19.80 in after-hours trading, from a close of $18.88 on the New York Stock Exchange, according to Instinet. Bank of America shares rose 4 cents to $69.54 on the NYSE.
Under the agreement, about 1,000 Bank of America staff across the United States will become EDS employees.
EDS will help Bank of America transform its voice and data network systems to enable it to better serve customers, the companies said. EDS will redesign and install Bank of America’s optical network and provide the company with customer help-desk services.
The deal is the first multibillion-dollar contract EDS has won since September, when it stunned Wall Street by saying its third-quarter profit would fall short of estimates as spending on computer services all but dried up.
Since then, the No. 2 consulting and services company after IBM Corp. has lost a series of big deals, including contracts with J.P. Morgan Chase & Co. and the state of Texas. It also suffered the termination of a Procter & Gamble Co. deal.
Analysts said the deal with Bank of America was good news in the long term, but wondered if EDS -- which must spend millions of dollars in cash to get big services contracts up and running -- would be hurt in the short term.
When EDS warned in September, it said its free cash flow for the full-year 2002 would fall to $200 million to $400 million, down from its previous forecast of $600 million to $800 million.
EDS, with $614 million in cash on hand, said it is not purchasing any of Bank of America’s assets as part of the deal, but there is a required capital outlay of $100 million in 2003. That already is factored in to the company’s $1-billion free cash-flow guidance for next year, a spokesman said.
“If it’s $100 million, then that is definitely a positive for EDS, and this contract definitely looks to be better quality because of the lower capital outlay,” said Adam Frisch, an analyst with UBS Warburg.
The Bank of America deal was first disclosed Wednesday in a note by Lehman Bros., sending EDS shares up more than 10%. The note said such a deal that closed in the fourth quarter should easily allow EDS to meet its fourth-quarter new-contract bookings estimate of $5 billion.
Separately Wednesday, EDS said it was in exclusive talks to provide technology services to Bank of Bermuda in a 12-year contract worth $375 million.
