EDS Acquisition Creates New Line of Business

Electronic Data Systems Corp. announced May 23 it would buy Structural Dynamics Research Corp. for approximately $950 million in cash, or $25 a share.

SDRC's product management software allows collaboration on product design over the Internet, speeding time-to-market and reducing development costs.

Concurrent with the purchase, EDS plans to take its Unigraphics Solutions Inc. subsidiary private and combine UGS and SDRC, creating a fifth line of business that will have $1 billion in annual revenue. UGS is a leading producer of product life-cycle management software.

EDS of Plano, Texas, is offering to buy the 14 percent of Unigraphics Solutions that is publicly held for $27 a share, or about $170 million. EDS bought UGS from McDonnell Douglas Corp. in 1991 and took UGS public in 1998.

Both transactions are expected to close on or about the end of the third quarter.

EDS expects the new business will grow 16 percent to 20 percent annually over the next five years. Tony Affuso, UGS president and chief executive officer, will become president of the new business.

The purchase and consolidation of SDRC and UGS will create a leader in digitized product life-cycle management software and services, according to EDS. PLM offerings digitally produce and share product planning, design, manufacturing and distribution information for collaboration via local networks and the Internet.

"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, EDS chairman and chief executive officer. "UGS has given us a window on this change and on the emergence of product life-cycle management, where digitized information is shared instantly and globally. Now is the time to move quickly and decisively to capture opportunities in this space."

The SDRC acquisition will bring EDS 7,000 clients, 85 percent of whom are new to EDS, and greatly expand relationships with companies including Honeywell and Nokia, Brown said.

"Most importantly, we gain substantial software capability in a rapidly emerging market with significant 'pull-through' revenue for services from our other four lines of business," he said.

According to EDS, the two purchases will slightly dilute its earnings in the fourth quarter of 2001 and for 2002. The company also expects to take a modest one-time charge for purchased in-process research and development in the quarter when the SDRC acquisition closes.

EDS expects the purchases will be neutral to EDS earnings in 2001 and positive in 2002.

UGS, Cypress, Calif., had revenue of $526 million in 2000 and $136.4 million in the first quarter of 2001. It employs 3,400 in 30 countries.

SDRC, Milford, Ohio, had revenue of $452 million in 2000 and $113 million in the first quarter of 2001. It employs 2,500 people in 22 countries.

EDS reported revenue of $19.2 billion in 2000. It employs 122,000 in 55 countries.