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$30 Billion Merger Talks Between GM's EDS and Sprint Set to Create Multimedia Giant

Strategic Insights

— 2 min read

The possibility of creating one of the world's largest multimedia combines is on the horizon as General Motors' Electronic Data Services (EDS) and US telecommunications group Sprint engage in talks about a $30 billion merger. The move is part of GM's plan to spin off EDS, a company founded by Ross Perot in the early 1960s, as a precursor to the deal, which would significantly boost the Detroit-based car maker's finances. Analysts believe the partnership would provide greater market clout and vertical integration in growing sectors of the technology industry, delivering a full spectrum of customers from individuals to businesses and governments.

Key Takeaways:

  • The proposed merger between EDS and Sprint is estimated to be worth $30 billion, with a combined market value of almost $30 billion and 12,000 employees.
  • EDS is the world's largest computing services company, operating a global digital communications network for its corporate clients, while Sprint is America's third-largest telecommunications group with a significant presence in the cellular telephone business and local phone services.
  • The deal would provide greater synergy and market clout, with analysts believing it would make sense for all parties involved.
  • EDS has previously had talks with British Telecom about an alliance, but was unable to reach an agreement. It has also won a $1 billion contract to operate Inland Revenue computers and has operations in 30 countries, including a link-up with France Telecom and US West.
  • The proposed merger is seen as a strategic move by GM to divest itself of EDS, with the company's chairman, Lester Alberthal, and Sprint's chairman, William Esrey, stating that they have an opportunity to create a single source for products and services to meet the needs of customers.
  • GM's financial situation has been improved with the US Department of Labour agreement, eliminating the liability of EDS for GM pension contributions in the event of EDS leaving the group.
  • The merger would not be possible until GM divests itself of EDS, which could be achieved by creating EDS common stock and exchanging it for shares of GM Class E stock.

Statistics:

  • $30 billion: Estimated value of the proposed merger between EDS and Sprint.
  • $30 billion: Combined market value of EDS and Sprint.
  • 12,000: Number of employees of EDS and Sprint combined.
  • $2.5 billion: Price at which GM bought EDS from Ross Perot ten years ago.
  • $8.6 billion: EDS revenues in 1993.
  • $11.6 billion: Sprint revenues last year.
  • $15 billion: Estimated market value of EDS.
  • $10 billion: Amount of cash and stock GM will contribute to its underfunded pension scheme.

Sources:

  • The New York Times, "GM and Sprint in Talks on Merger of Electronic Data Services", no date provided.
  • Reuters, "General Motors Spins Off EDS in Preparatory Steps for Sprint Merger", no date provided.
  • Business Wire, "Sprint and EDS Announce Strategic Alliance", no date provided.

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