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A SPECIAL ANNEX NEWSFLASH

Change of Leadership at EDS

EDS CEO Replaced

Dick Brown to Leave EDS; Michael Jordan and Jeff Heller to Take Over April 1

PHOENIX, Mar 20 - "I own this problem," read a two-page banner headline of a mostly flattering article in last month's Fortune magazine, quoting the EDS chairman and CEO.  "EDS boss Dick Brown knows he's got a rat in his pocket," read the sub-heading.  

Well, he no longer does.  The company announced this afternoon that Brown will be replaced by Michael Jordan (not the basketball star!), and that Jeff Heller, an EDS veteran who retired last year, would also return as president and COO.  

And so ends another era in EDS history.  Dick Brown's four-year legacy can be summarized as "from famine to feast and back to famine."  Only a year ago, Brown and EDS looked as if they could walk on water.  While the rest of the IT industry atrophied, they seemed to have found ways of prospering amid the gloom and doom (see "What 'Recession'?" - an analysis of EDS 4Q01 Results, Feb 8, 2002).  

Well, no longer.  After September 18, 2002 all hell broke loose for EDS (see EDS Issues Earnings Warning, Sep 18, 2002).  As a result, while its competitors fortunes brightened (see "IBM: Start of a Real Turnaround?," Jan 17, 2003), EDS's dimmed (see "EDS: Rebuilding Trust, Confidence,").  

Now that the ax has fallen, what kind of a legacy does Dick Brown leave?  Is EDS better off now than four years ago?

The answer to that question is an unqualified "yes."  Here's how the new CEO (Jordan) put it in his Mar 20 comment to the Dallas Morning News:

"The business is strong and profitable. The company has a decent balance sheet. There's no reason for it to be selling at the multiple it's selling at," Mr. Jordan said. "The market punishes you for surprises. In this case, it wasn't casual punishment. It was corporal punishment."

"EDS is a financially solid company with an excellent future," the ousted CEO (Brown) himself wrote in an e-mail to employees. "While the stock market isn't giving us much of a break right now, there is no question EDS is positioned better today to deliver long-term success than at any time in our history.... There are times in the history of a company where change in senior leadership makes sense. Now is such a time at EDS."

Ironically, Brown failed in the end in what had been his best and brightest achievement prior to 2002 - managing investor relations, i.e., building trust and confidence on Wall Street.  The latter also turned out to be the undoing of Brown's predecessors (Les Alberthal and Gary Fernandes).  

As for the new EDS CEO, Jordan is known in the Dallas business circles as a turnaround artist.   He retired as chairman and chief executive officer of CBS Corporation (formerly Westinghouse Electric Corporation) in December 1998, after leading it through one of the most comprehensive transformations in corporate history. 

"If you go back a decade to Westinghouse, when Mike Jordan showed up, everybody had written the company off, and most were convinced it would go bankrupt," CBS MarketWatch quoted a Wall Street analyst as saying.  "Mike and the team he recruited avoided going bankrupt, and several years later the company sold for $20 billion to CBS."

Before joining Westinghouse, Jordan was a partner with Clayton, Dubilier and Rice, a private equity firm in New York.  Previously, he spent 18 years with PepsiCo, Inc.  During this time, he served in numerous senior executive positions, including CFO of PepsiCo, Inc. and President and CEO of PepsiCo WorldWide Foods, which includes Frito-Lay.  From 1964 to 1974, he was a consultant and principal with McKinsey & Company.

As for Jeff Heller, we would be hard pressed to think of anyone who is better qualified to serve as an EDS leader's right hand.  Having joined the company 35 years ago when EDS was a mere start-up, Heller has served as an invaluable right-hand executive to all previous EDS CEOs (Perot, Alberthal, Brown and now Jordan, too).

No wonder the EDS stock rose $1.30 to $17 in response to the leadership change announcement.  Chances are, it won't stop there, either.

 Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2003: "EDS: Rebuilding Trust, Confidence," (Feb 10, 2003)

2002: Wall Street Legal Vultures Descend Upon EDS (Sep 27, 2002),  EDS Issues Earnings Warning (Sep 18, 2002),  Wall Street-Main Street Chasm Widens (July 3, 2002),  "What Recession?" - an analysis of EDS 4Q01 Results, Feb 8, 2002)

A selection from prior years: Annex Research Analysis of EDS 4Q00 Results (Feb 7, 2001),  EDS Takes Over US Navy (Oct. 10, 2000),  EDS Second Quarter Results (July 28, 2000),  Annex Bulletin - 2000-02 (EDS' e-Price Clubs).

Or just click on and use "financial engineering" or similar  keywords.

 






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Volume XIX, Annex Newsflash No. 2003-03
March 20, 2003

Editor: Bob Djurdjevic
Published by Annex Research, Inc.
e-mail: annex@djurdjevic.com

P.O. Box 97100, Phoenix, Arizona 85060-7100
TEL/FAX: (602) 824-8111

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