Telecom rings up $46m in EDS buyback

By PETER GRIFFIN

Telecom is shedding its 10 per cent interest in IT services company EDS for a $46 million cash payment.

EDS will re-assume 100 per cent ownership of its operation, putting a final nail in the coffin of another dot-com era deal.

Although Telecom will no longer be an equity partner of EDS, its $1.5 billion IT outsourcing contract with the company has been extended to 2012 at a cost of US$133 million ($292.52 million) to Telecom.

Telecom chairman Roderick Dean said $46 million in the hand was considered more valuable than a 10 per cent slice of EDS.

"The option we had to share in their growth and business in other areas we would now not put as much value on as we did at the time," he said.

Telecom's two representatives on the EDS board, Mark Verbiest and Mark Ratcliffe, will resign from that board next month after the buyback of Telecom's stake.

EDS New Zealand reported a $2 million loss on revenue of $349 million last year.

Operating profit of $30 million was swallowed up by $15.2 million in goodwill and royalty payments and $14.3 million in interest payments to its United States parent.

A bottom-line loss of $4.1 million on higher revenue of $405 million was reported in 2000.

EDS' managing director of three weeks, former TVNZ chief executive Rick Ellis, said EDS was happy to re-acquire Telecom's shareholding.

He said the move was unrelated to the decision to pull the plug on Esolutions.

In May, Telecom, EDS and Microsoft dissolved their loss-making Esolutions partnership.

It was set up in 2000 to become an application service provider selling software over the internet.

"As time has passed, the market has gone in a different direction to what was envisaged at the time."

Sydney-based UBS Warburg telecoms analyst Paul Richardson said Telecom's divestment was not a big surprise because of the good progress of the EDS contract.

But with the Esolutions partnership dissolved and the equity relationship with EDS severed, Telecom would be less well-placed to develop data products for businesses.

"Telecom has some long-term issues in the corporate data market delivering the packages people want, particularly in the Australian market.

"It's struggling in that area."

Telecom chief executive Theresa Gattung said other shareholdings were under review but there were no plans to divest stakes in INL or Sky.

Reverting to a purely commercial relationship with EDS, Telecom slips out of the small group of EDS customers that share a "special bond" with the IT company through joint ventures and equity stakes.

That was something talked up by Telecom in 1999, when it was pursuing both of those.