10 December 2004 Embattled IT services giant Electronic Data Systems (EDS) has bowed to shareholder pressure and will remove its poison pill provision, a move that could pave the way for a potential takeover.
EDS has had a poison pill provision – a mechanism to flood the market with shares in the event of a hostile takeover – since being spun off from General Motors in 1986. But it has now said it will terminate the plan in February 2005 – despite having rejected calls from shareholders to do so in May this year.
“EDS removing the poison pill keeps the door more open to a potential takeover down the road,” said Rod Bourgeois, an analyst with Sanford Bernstein.
The company has been floundering for several years, posting large losses and had high profile contracts go badly awry. Most notably: it lost the lucrative contract to run the Inland Revenue’s computer systems; its systems at the Child Support Agency have endured very public failures; and it faces a legal battle with broadcaster BSkyB over a failed customer relationship management implementation. EDS has also written up huge losses over its contract with the US Navy.
EDS has emerged as a possible takeover target having seen its share price take a hammering. It is expected to post annual revenues of around $20 billion in 2005, yet its market capitalisation stands at ‘only’ $11.5 billion.