EDS to take charge over Brown’s severance

Electronic Data Systems (EDS) will take a charge against earnings of about $.06 per share in its first fiscal quarter of 2003 over the severance package it is awarding former chairman and chief executive officer Dick Brown, the company said Friday. EDS’ first fiscal quarter ends on March 31, a spokeswoman said.

EDS’ obligations, entered into as part of Brown’s employment agreement in December 1998, include a $12.4 million cash payment, the vesting of previously awarded deferred stock units valued at $5.4 million and retirement benefits with a present value of $19.6 million, which will be paid in monthly installments, the company said.

EDS announced Thursday that Brown and the board of directors had agreed he should step down as chairman and CEO. Michael H. Jordan, former chairman and CEO of CBS, has replaced him.

Also coming on board is Jeffrey Heller as president and chief operating officer. Heller, who retired from EDS in February 2002 after 34 years with the company, was EDS’ president and COO between 1996 and 2000. The COO and president positions had been vacant since then.

Brown’s departure is a positive for EDS and its customers, because his emphasis on very large outsourcing contracts drained a lot of cash from the company and caused instability that led to some of the other problems that have affected EDS recently, said Andy Efstathiou, a Yankee Group analyst.

“Hopefully the new management will be less focused on acquiring big outsourcing contracts and more on achieving a balanced book of business going forward. Frankly, Brown’s exit should be a positive,” he said.

Bringing back Heller is also a good move, because he has a thorough knowledge of EDS, which is needed now in order to deal with the problems the Plano, Texas, company is facing, he said.

EDS has had rough going over the past year. It is under investigation by the U.S. Securities and Exchange Commission (SEC) partly over the steep earnings and revenue shortfall it suffered in the second half of 2002. Moreover, the bankruptcies of several big clients, such as WorldCom and UAL , have dragged it down. Its sales have disappointed and several big outsourcing contracts it seemed to have in the bag have slipped through its fingers in recent months. It also announced plans late last year to lay off between 3 percent and 4 percent of its workforce.

Friday morning, Wall Street responded positively to Brown’s departure, which was announced shortly after the close of trading Thursday in the New York financial markets. The stock (EDS) is up 9.33 percent in mid-morning trading in the New York Stock Exchange to $17.23. That, however, is still far from its 52-week high of $64.13.