EDS to Sell Its CAD Division

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The Financial Times is reporting that EDS has found a private buyer for its CAD division, UGS PLM Solutions. The price is set at US$1.8 billion, or twice its annual revenues. Readers of our Weblog learned of this news Monday morning at 8:30 a.m.

(To raise much-needed cash, EDS had originally planned to sell just a minority of the division, probably around 20%, through an IPO [initial public offering of shares] in the first half of this year.)

"EDS said it had received 'solid interest' in a private sale and expected to make a decision within a month. It would not say who had expressed the interest or what amount had been offered," reports FT.com.

Who Might Buy? Reuters quotes Jeff Baum, EDS director of investor relations, saying, "We have some potential buyers who are looking at the business." The new CEO of EDS had said earlier that his company had no reason to be in the software business (because EDS is a services company). Who might the purchaser be?

a.. The CEO of arch-competitor Dassault Systemes expressed no interest: Dassault plans more acquisitions of "interesting start-ups," but definitely ruled out purchasing UGS PLM Solutions. b.. Autodesk has in the past expressed interest in customer lists, not in the technology of up-for-sale competitors. This is different, however, because acquiring NX (nee UGS) would allow the company to make r-e-a-l-l-y big sales to automotive and aircraft manufacturers. But does Autodesk have access to US$1.8 billion? c.. An LBO [leveraged buyout] firm could buy the division, guesses IPODesktop, and then do an IPO. Q4 Earnings: EDS (UGS PLM Solutions) Prior to yesterday's big news, EDS reported a Q4 net loss of US$354 million, a massive reversal from a year ago, when it made a profit of $360 million. The loss was due to a write-off of $559 million for the glitch-ridden US Navy intranet contract, the revenue from which will be half as much as EDS expected -- $900 million a year, instead of $1.9 billion. Sales to General Motors fell 14%, and revenue from new contracts fell in half to $4.3 billion. The company expects its profits for 2004 to fall by half.

One analyst said, "We think negatives outweigh the positives. The real hope for upside is now 2006 instead of 2005." Moody's Investors Service may cut its rating on EDS to "junk," which increases the interest EDS pays on $5.8 billion of debt. It also triggers clauses in some customer contracts, where EDS would have to prove it could still carry out the terms of the contracts.

In more positive news, Q4 revenue was $5.76 billion, up 8% from a year ago. Revenue from the UGS PLM Solutions division were up 8% to $248 million, and its profit increased by 49% to $56 million.

Q4 Earnings: Dassault Systemes "None of our competitors matched our performance." Dassault Systems was pleased to announced that Q4 sales rose to e227.8 million, but annual revenues 2.5% fell to e754.8 million over a year earlier. (For 2004, the company hopes to make e765 million.) Net profit rose 12.4% to e57.8 million. The company would have done better, had not the Euro strengthened against the US dollar. While sales were up 2%, they would have been up 8% without the exchange rate fluctuation.

Some 10,493 CATIA seats and "a record" 7,068 new SolidWorks seats were licensed during the quarter.