EDS, which had walked away from negotiations over this project in July, is now the only candidate and the companies "are close to finalizing a contract," Vicky Mayer, a Procter & Gamble spokeswoman, said. The negotiations are ongoing and are expected to last several more days, John Clendening, an EDS spokesman, said.
Speculation that EDS might be a candidate for the contract emerged after the front-runner at the time, Affiliated Computer Services (ACS), announced on Tuesday it was abandoning negotiations with Procter & Gamble.
On Wednesday, aWall Street Journalarticle stated that EDS, the world's second-largest IT services provider, would likely land the outsourcing contract, but EDS and Procter & Gamble declined to comment at the time.
Procter & Gamble is looking for an IT services provider that will buy its Global Business Services unit, which handles its back-office operations, and that will in turn outsource those back-office services to Procter & Gamble, Mayer said.
By doing so, Procter & Gamble is looking to receive better services to support its global operations, lower its costs and provide "the best conditions and most opportunities" for the staffers of the Global Business Services unit, Mayer said.
The contract is of the business process outsourcing (BPO) type, an ACS spokeswoman said Wednesday. In BPO engagements, the services provider not only handles IT tasks but also business operations, such as payroll, billing and accounting.
ACS pulled out of the negotiations because it felt that the terms of the contract wouldn't be in the company's best interest. EDS sang a similar tune back in early July, when it took itself out of the running, and CEO Dick Brown said about the Procter & Gamble deal in a conference call with analysts that "the financial model, especially related to the acquisition cost, simply didn't make financial sense as structured for EDS, and we withdrew." Clendening declined to comment Thursday on why Plano, Texas-based EDS changed its mind.
Back in July, financial analysts applauded EDS' decision to abandon the Procter & Gamble negotiations.
But EDS isn't very popular with financial analysts and investors these days. It dropped a bomb Wednesday after the close of the financial markets in New York when it dramatically slashed its earnings and revenue forecasts for its third and fourth fiscal quarters. For example, the company said it expects to post earnings-per-share in the $0.12 to $0.15 range instead of the $0.74 it had previously forecast for its third fiscal quarter, which ends Sept. 30.
The announcement Wednesday prompted a rash of financial analyst downgrades for EDS, as well as some angry comments. "Within the past month, EDS management was indicating business was tracking. We believe management credibility is seriously damaged," wrote Jim Kissane, a financial analyst with Bear, Stearns & Co., in a downgrade note Thursday.
"We would continue to avoid the shares of EDS. It is clear now that EDS is a black box. The bull-case may rest on a massive restructuring [break-up]," Kissane wrote.
"We are disappointed by the magnitude of the earnings shortfall," J.P. Morgan Securities analysts wrote in a downgrade note about EDS Thursday.
The IDG News Service is a Network World affiliate.
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