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This is scary... EDS is about to farm out another group of Hi-tech jobs to India.

EDS to buy Procter&Gamble technology operations
September 18, 2002 6:07:00 PM ET

By Siobhan Kennedy

NEW YORK, Sept 18 (Reuters) - Electronic Data Systems Corp. (EDS) on Thursday will announce a deal to buy the business technology operations of Procter & Gamble Co (PG) and manage them in a ten-year, $8 billion contract, sources close to the deal said on Wednesday.

EDS declined to comment.

That announcement would come after EDS slashed its earnings forecasts on Wednesday due to few service contracts and an unwillingness by companies to spend on technology. That news sparked a nearly one-third drop in EDS stock in after-hours trading to $24.80 -- its lowest level in more than a decade.

EDS had pulled out of talks with Procter & Gamble in July, saying it failed to agree on a price for the unit, which runs the U.S. consumer goods giant's back-office operations, such as payroll and benefits.

At the time, that left EDS rival Affiliated Computer Services Inc. (ACS) as the exclusive bidder for the contract. But on Tuesday, ACS said it also pulled the plug on the deal because it couldn't settle on a price for the division. It also said the "operational and cultural risks were too high."

Under the contract, Procter & Gamble wants to sell the technology operations that are used to run its global business processes, such as staff payroll, accounts payable and pensions. Once it has sold the unit, P&G will farm out the management of those operations to the successful buyer.

So-called business process outsourcing, or BPO, is one of the hot sectors in the computer services sector right now. Analysts estimate the $180 billion BPO market is expected to grow at a 10 percent to 12 percent annual rate over the next five years.

ACS is one of the leaders in the market for business process outsourcing, with 70 percent of its business coming from those types of lucrative contracts.

EDS and other services companies, most notably International Business Machines Corp. (IBM) and Computer Sciences Corp. (CSC), are trying to make a bigger push into this business. Right now the majority of their revenue comes from technology outsourcing, where a services company takes over the computer and server operations of an organization and runs them remotely on their behalf.

As part of the deal, between 5,700 and 7,000 P&G employees will transfer to EDS. REUTERS