IT services giant Electronic Data Systems Corp has pulled plans to spin off its UGM-PLM solutions unit, and is instead considering a private sale.
Plano, Texas-based EDS has always said it would either go for an IPO or sell its Product Lifecycle Management unit privately, but analysts had expected it to take the IPO route as this would have brought the highest return. The move towards a private sale comes only days after both ratings agencies began reviews of EDS’s debt for possible downgrade, after EDS unveiled fourth-quarter results that showed a $354m loss following a $559m write-down of deferred costs on its ill-fated US Navy Marine Corp intranet contract.
It might need to go forward with a private sale to more quickly get its hands on the cash, and there is a concern that EDS might be forced to let the unit go for a discounted price. CEO Michael Jordan has been reported as saying that it has received solid interest from a potential buyer, and that he expects the unit to achieve a valuation of 1.5 times its 2003 sales of $866m, making a target price of $1.3bn.
PLM systems encompass design-authoring technology such as computer-aided design software and collaboration tools that enable people across an enterprise to participate and share knowledge during a product’s entire lifecycle, from its creation and design through to retirement. Its major selling point is its ability to help reduce the time to market of a product through more efficient management of the processes involved. Until last November the UGS-PLM Solutions unit was known as PLM Solutions when EDS decided to revive the UGS brand it inherited when it completed its takeover of Unigraphics Solutions in 2001.
In October 2003, the services vendor, which has been battling to regain its financial credibility, said it was considering an IPO or private offering of a stake in the PLM business, as it worked to refocus on its core services business. Jordan said such a move would allow EDS to leverage the value of the unit, and would sharpen EDS’s focus on its core IT outsourcing services business.
PLM has been one of the most hyped areas of IT in recent years, with stratospheric projections of growth predicted by research companies, though such projections have been lowered over the past year. Despite the high growth expected of the sector, EDS’s PLM sales have actually declined. In 2003 the PLM unit generated revenues of $866m compared to $879m in 2002, though operating profits increased to $151m from $138m. Its most recent quarter was more promising, with sales up 8% at $248m and operating profits up 49% at $56m.
This article is based on material originally published by ComputerWire