Sprint may merge with GM unit

May 17, 1994|By Los Angeles Times

In yet another sign of affinity between the computer and the telephone, General Motors Corp. said yesterday that its computer services unit, Electronic Data Systems Corp., is discussing a merger with long-distance provider Sprint Corp.

The proposed "merger of equals," which would require GM to spin off EDS, would create a high-tech behemoth with $20 billion in annual revenue, 120,000 employees and powerful communications and data processing capabilities.

GM purchased EDS in 1984 for $2.5 billion from founder Ross Perot in a rare stroke of luck or foresight to modernize its information processing system. The unit is now valued by analysts at about $15 billion.

To make the merger happen, GM would spin off EDS to holders of its Class E common stock, whose dividends are based on income from EDS. Terms of any merger with Sprint have yet to be agreed upon.

Nevertheless, EDS and Sprint said the merger would strengthen their respective positions in existing markets while enabling them to tackle emerging multimedia markets.

"The combination is formidable," says Robert Clark, industry analyst at Dataquest Inc., a Silicon Valley, Calif., market research company.

EDS is already a heavy user of telecommunications. EDS builds and operates computer systems that connect factories, dealers, offices and parts suppliers for companies like parent GM and Xerox.

The company would use Sprint's state-of-the-art communications system to cut its phone costs and offer customers one-stop shopping.

"Companies want a one-stop provider for all communications and information needs," said EDS Chairman Les Alberthal.

Sprint's network and broad customer base would also make it easier for EDS to reach millions of consumers with new services such as home shopping, video-on-demand, remote home automation and on-demand education, Mr. Alberthal said. The company already serves consumers by collecting and processing data from banks' automated teller machines.

Sprint, for its part, needs the cash and computer know-how to compete in the long-distance telephone business, where it is now a weak third behind AT&T and MCI Communications.

"The combined ability to deliver information technology and telecommunications capability on a world level is not currently available," said Sprint chief executive William Esrey in a statement.

While telecommunications companies like Sprint can transport information efficiently, says Ken Zita, partner at Network Dynamics Associates, a New York communications consulting company, they don't have the technology to connect varied computer systems.

In a major step in that direction, AT&T recently announced it would develop systems to enable companies using a popular local area network software to connect their various operations over long distance lines. AT&T would, in effect, enable companies to create global private networks without having to hire systems integration providers like EDS.

Sprint and GM cautioned there are "significant issues to be resolved" before the merger goes ahead.

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