Reuters
EDS, hungry for cash, may sell entire PLM unit
Monday February 9, 2:14 pm ET
By Wei Gu

NEW YORK, Feb 9 (Reuters) - Electronic Data Systems Corp. (NYSE:EDS - News),
the No. 2 U.S. technology services company, said on Monday it is exploring "all options,"
including a sale of its software subsidiary, to raise much-needed capital as its bonds
are at risk of being downgraded to junk quality.

EDS said in October that it plans to complete an initial public offering or a sale of a
minority stake of its UGS PLM Solutions unit, a software unit that has outperformed
its main outsourcing business, in the first half of 2004.

The PLM business, which stands for product lifecycle management, has been on
the upswing. Sales rose to $894 million in 2003 from $879 million in 2002. The
software helps companies share product planning, design, manufacturing and
distribution information over networks.

After posting a deep quarterly loss and forecasting earnings that were only half of
analysts' estimates for 2004, EDS said it will not rule out the chance of selling the
whole subsidiary, which the company said could fetch about $1.8 billion.

A Financial Times story said EDS Chief Executive Michael Jordan valued the business
at 1.5 times sales, or about $1.2 billion. However, Jeff Baum, director of investor relations,
said the company would not accept an offer for less than two times 2003 sales, or $1.8 billion.

"We are keeping all options open," Baum said. "We have some potential buyers
who are looking at the business."

EDS, which under new management is struggling with money-losing contracts
and heavy competition, needs cash desperately as three rating agencies have
put its debt on negative watch after it slashed its cash flow estimate for its
problematic Navy contract last week.

A junk rating is likely to make it extremely difficult for EDS to secure long-term
contracts, as customers will not turn over mission-critical operations to a struggling company.

To be sure, EDS already has problems signing new contracts. New signings were
half of what it was a year earlier, putting EDS at the same level with rivals that are
only half its size, such Accenture Ltd. (NYSE:ACN - News) and Computer Sciences
Corp. (NYSE:CSC - News).

"EDS wants all its money now," said Francis Gaskins, editor of IPODesktop,
a Web site that tracks IPOs. "They may be selling the unit to a leveraged buyout firm,
which in turn will do an IPO."

If EDS decides to go through a public offering or a private placement, it might only
be able to sell a portion of the business initially. Gaskins said. Investors are unlikely
to embrace the IPO with much zest because cash-strapped EDS could ill afford to
fund its future growth, he said.

The PLM unit, launched by EDS in 2001 after acquiring and merging two companies
when the old management was on a buying spree, has weathered a manufacturing
slump in recent years, but managed to eke out an 8 percent revenue growth in the
fourth quarter. Operating income jumped 49 percent to $56 million on strong demand
for its software, EDS said.

"I think they can probably find a good buyer," said Joseph Vafi, an analyst with
Jefferies & Co. "That is probably one of their best performing pieces of business right now."

Shares of EDS fell 73 cents, or 3 percent, to $21.17 on the New York Stock Exchange
(News - Websites) at mid-afternoon.

http://biz.yahoo.com/rf/040209/tech_eds_1.html