Gm Will Spin Off Eds Subsidiary

General Motors Corp. plans to liberate the computerized information management business it bought from Ross Perot more than a decade ago.

GM said Monday it would spin off its Electronic Data Systems subsidiary by exchanging EDS stock for shares of GM Class E stock, worth about $22 billion at Monday’s prices. GM paid $2.5 billion to buy the company from Perot in 1984.

The spin-off would leave EDS, one of the biggest players in data processing, free to expand and buy other companies in the rapidly shifting information services industry.

EDS and its competitors sign contracts to handle data processing for other companies.

For example, in Spokane EDS performs virtually all the information processing for Washington Water Power Co. About 60 EDS employees work on the WWP contract, according to utility spokesman Jay Hopkins.

GM officials said EDS will grow faster as an independent company.

“Our affiliation with GM has been a positive one for both companies,” EDS chairman Les Alberthal said in a statement. “But as EDS increasingly seeks to move into new markets, forge new alliances and offer a widening array of capabilities, it becomes more advantageous to possess the flexibility we can have as a stand-alone company.”

The transaction will be accomplished in the first half of 1996, provided GM shareholders and government regulators approve and the Internal Revenue Service agrees that it would be tax-free for GM.

Exact terms of the exchange of stock have not been determined by General Motors.

Analyst William Rabin of J.P. Morgan Securities Inc. said gaining independence has been part of EDS’ strategic plan. He said it would make it easier for the company to acquire others and to expand into the telecommunications industry.

“Data processing and telecommunications in general are coming together,” Rabin said.

In fact, EDS and Sprint Corp. discussed a plan last year that would have led to a merger after a GM spinoff of EDS, but a deal didn’t materialize. Earlier this year, Sprint entered a $4.1 billion deal with two European partners, Deutsche Telekom and France Telecom, to form a global telecommunications network.

EDS, based in Plano, Texas, is among the nation’s largest providers of computer services to business and government. Its 1994 revenues of $10.1 billion generated profits of $822 million, its ninth consecutive annual earnings record.

EDS designs, builds and operates computer systems. Its 80,000 employees service 8,000 clients ranging from Xerox Corp. to the government of England, for which it manages income tax systems.

GM itself is the largest EDS customer, accounting for about 35 percent of its business. But that share has slowly declined as EDS has sought to diversify its client base internationally. EDS also has been working to establish itself as a management consultant. In June it agreed to buy A.T. Kearney, a Chicago consulting firm.

The big benefit to the automaker, he said, would be the potential for growth in the value of EDS stock. GM’s hourly employee pension fund owns about 30 percent of the GM Class E shares that would be swapped for EDS stock.

GM Class E stock closed up $2.75 at $46.37-1/2 Monday. GM common finished the day at $48.37-1/2, up 12-1/2 cents.