EDS Eyes Product Lifecycle Market

Electronic Data Systems (EDS) Wednesday moved to extend its reach into the
product lifecycle management (PLM) software arena and improve its
positioning in the supply chain arena through deals to acquire Structural
Dynamics Research Corp. and its publicly-held subsidiary, Unigraphics
Solutions (UGS).

EDS will shell out about $950 million in cash, about $25 a share, for SDRC,
and plans to offer to buy the 14 percent of UGS that is publicly held for
$27 a share, about $170 million.

The two companies would be folded together under the UGS name and become a
fifth line of business for EDS. The company projected that the new UGS would
be a leader in digitalized PLM, with more than $1 billion in annual

“In the last 24 months, we have seen the beginning of a network-based
revolution in the way products are designed, developed and manufactured,”
said Dick Brown, chairman and chief executive officer of EDS. “UGS has given
us a window on this change and on the emergence of product lifecycle
management, where digitized information is shared instantly and globally.
Now is the time to move quickly and decisively to capture opportunities in
this space.”

In addition to opening up a new market for EDS, the acquisitions would also
bring the company 7,000 clients, 85 percent of them new to the company. Many
of those clients are in the automotive and aerospace industries — including
Ford, Mazda, Honeywell and Nissan — and will create opportunities for
cross-selling consulting, systems integration and outsourcing services.

Analysts were initially skeptical about the deal, but Goldman Sachs & Co.’s
Gregory Gould said the acquisitions make sense after a second look.

“The strategy behind yesterday’s announcement wasn’t initially apparent
given EDS’ primary focus on outsourcing, BPO, and consulting/systems
integration,” Gould said. “Moreover, we were concerned with SDRC’s spotty
historical track record and the normal challenges services companies face in
the software market. Upon further analysis, however, the strategic rationale
does appear sound because it enhances EDS’ expertise in an important area.
Although SDRC’s core CAD/CAM product isn’t regarded as competitive, over the
past few years the company’s growth engine has shifted toward collaborative
software and digitized product lifecycle management software. SDRC’s main
application — Metaphase — was recently revamped and is viewed as highly
competitive. Metaphase complements UGS’ software solution and in general
positions EDS to participate in a new market estimated at $18 billion in
annual revenue.”

And Gould noted that EDS can easily shore up SDRC’s distribution, which he
said has been its weakest link. EDS brings a strong salesforce, strong
consulting/systems integration skills, and a focus on the manufacturing
sector to the table. Meanwhile SDRC’s collaborative and PLM software will
enhance EDS’ positioning in the supply chain arena.

EDS anticipates closing both transactions around the end of the third
quarter, though it must still jump through U.S. and foreign regulatory
hoops. The company also warned that the acquisitions will likely be dilutive
in fourth quarter 2001 and for 2002. It also expects to take a “modest”
one-time charge for purchased in-process research and development in the
quarter when the SDRC acquisition closes.

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