EDS buys the Feld Group in $89 million deal

Electronic Data Systems has acquired IT management consultancy the Feld Group, a purchase intended to strengthen EDS’ executive ranks and IT-transformation and business process outsourcing services.

EDS bought the Dallas, privately-held Feld Group for about $41 million in cash and $48 million in restricted stock, warrants and options, EDS announced Monday.

With the Feld Group, EDS gains skills, staff and software for reorganizing companies’ IT departments, as well as two senior executives who are stepping into a pair of new and key positions at EDS.

The Feld Group, founded in 1992, has among its success stories the transformation of the IT departments at Burlington Northern Santa Fe and PricewaterhouseCoopers, said EDS of Plano, Texas. Most of its staff of about 60 people is transferring over to EDS, an EDS spokesman said Monday.

The Feld Group’s value proposition has traditionally been that it can deal with CIOs at their level, establishing a CIO-to-CIO interaction with clients, said Gartner analyst Lorrie Scardino. “They’re very focused on the CIO and on alignment of business and IT. That’s what they do best,” she said. Scardino expects the Feld Group team to help EDS continue its internal transformation, as well as help out in key, strategic client accounts with its CIO-to-CIO specialty approach.

Charlie Feld, founder, chief executive and president of the Feld Group, and Steve Schuckenbrock, COO of the Feld Group’s consulting business, will lead two of EDS’ three new operating groups, reporting directly to EDS Chairman and CEO Michael Jordan, the spokesman said.

The challenge for EDS’ top management now is to make sure that EDS employees, clients, investors and industry analysts “buy into” the appointments of Feld and Schuckenbrock, who, as outsiders assuming key jobs, will need external and internal support to accomplish their goals, said Andrew Efstathiou, a Yankee Group analyst.

“The big question mark for the marketplace is: who are these people? It doesn’t mean they’re not good. It means EDS need to proactively address this question,” he said.

At the same time, the appointment of these two outsiders is a clear sign that Jordan and his executive team aren’t sitting around waiting for EDS’ transformation to happen but are rather actively attempting to make it happen, Efstathiou said.

Feld will become executive vice president of EDS’ Portfolio Management group, while Schuckenbrock steps in as executive vice president of the Global Sales & Client Solutions group. Former ChevronTexaco CIO Dave Clementz had previously been appointed to lead the other major operating group, Service Delivery. Schuckenbrock and Feld are also former CIOs.

As head of the Portfolio Management group, Feld will oversee the creation, updating and packaging of EDS service offerings, which Schukenbrock’s group, Global Sales & Client Solutions, will be entrusted with selling, the spokesman said.

These three operating groups replaced multiple lines of businesses. The new operating structure, announced by CEO Jordan in mid-2003 along with other restructuring measures, is meant to simplify the way EDS interacts with customers, improve how it delivers services and sharpen the focus of its services portfolio on EDS’ core outsourcing strength.

Jordan took over as chairman and CEO in March 2003, after EDS ran into problems, including disappointing sales, an ongoing U.S. Securities and Exchange Commission investigation, large money-losing contracts and layoffs. The Feld Group acquisition “speeds our transition,” Jordan said in a statement Monday.

The Wall Street Journal reported in November that Jordan wanted EDS to buy the Feld Group, but that EDS directors at the time hadn’t given the go-ahead because they were concerned about the appearance of conflict of interest. Jordan and Feld are long-time friends and the two have been involved in several business relationships together, The Journal reported in a Nov. 7, 2003 article, based on interviews with unnamed sources familiar with the EDS board’s conflict of interest concerns.

At the time this article ran, Efstathiou talked to several people inside and outside EDS whose consensus was that the conflict-of-interest concerns had killed the Feld Group purchase, he said. “That EDS bought the Feld Group shows the tenacity of Mr. Jordan and clearly indicates how important this acquisition is in his opinion,” Efstathiou said.

If EDS went through with this, it’s fair to assume that the company’s legal team reviewed the deal very closely, he said.