Moving to address the growing human resources outsourcing market, Electronic Data Systems Corp. is teaming with HR consultancy Towers Perrin on a joint venture.
In addition, Towers Perrin signed a 10-year, $365 million deal with EDS to outsource its global network, desktop and hosting environment. EDS will also develop and manage some applications for Towers Perrin under the contract.
The new company, yet to be named, will be 85 percent owned by EDS and 15 percent owned by Towers Perrin. Steve Bohannon, EDS vice president of HR services, will lead the new company, which will be governed by a board of directors from both companies. Under the deal, EDS will pay an estimated $420 million to Towers Perrin.
“Our clients want us to be their HR advocates, listen to their challenges and deliver results that matter to the bottom line,” said EDS Chairman and CEO Mike Jordan in a statement.
The new company will have about $600 million in annual revenue, about half contributed by each company, and more than 400 clients in the United States, Canada, Europe, and Central and South America, with about 33 million active and retired HR plan participants. It will be made up of Towers Perrins Administration Solutions business, which provides pension and health and welfare administration services, and EDS payroll and related HR outsourcing business. EDS will own the management of Towers Perrin Administration Solutions facilities, staff and intellectual property, according to EDS officials.
“Its a big deal,” said Julie Giera, an analyst at Forrester Research Inc. in Cambridge, Mass. EDS business success has been muted by poor marketing, she said. “EDS had been building an HR outsourcing business and has $2.8 billion in annual BPO revenue, but nobody knew about it,” Giera said.
With HR BPO (business process outsourcing) competition coming from Accenture, IBM Global Services, and Hewlett-Packard Co., and offshore titans such as Wipro, Tata and Infosys Technologies Ltd. eyeing the BPO market, EDS needed to respond, the Forrester analyst said. “This deal gives EDS immediate breadth and depth in HR BPO. It takes the intellectual capital of Towers Perrin and combines it with EDS global delivery model. Its a big coup for EDS. Its another step in their recovery.”
The transaction is pending approval by Towers Perrin shareholders, and is expected to close by the end of the first quarter of 2005.