HP, Procter & Gamble Sign $3 Billion Deal

The 10-year deal calls for Procter & Gamble to outsource its IT operations to HP.

The Procter & Gamble Co. will soon close out its long, drawn-out search for an outsourcing partner, having signed an agreement in principal to outsource its IT operations to Hewlett-Packard Co.

HP won the $3 billion, 10-year IT operations outsourcing deal in short order, having only entered negotiations early this year. HP was not even a dark horse last summer as P&G saw both Affiliated Computer Services Inc. and Electronic Data Systems Inc. walk away from negotiations for a large-scale business process outsourcing deal.

The much-scaled-back plan calls for HP Services to take on 1,850 employees from 50 countries in P&Gs Global Business Services unit. Covered under the outsourcing agreement are management of P&Gs IT infrastructure, data center operations, desktop and end-user support, network management, and some applications development and management for P&G operations in 160 countries.

The Cincinnati company had initially sought to spin out its Global Business Services unit with a partner in a much larger business process outsourcing deal that would have affected as many as 5,700 employees. But it did not negotiate with HP for a deal of that magnitude.

Although EDS chose not to pursue the contract last summer because officials believed it would not provide the kind of margins that would sustain the deal, HP officials asserted that the agreement is "the most attractive deal" in the pipeline, according to Juergen Rottler, senior vice president of marketing strategy and alliances for HP Services in Palo Alto, Calif.

"They have an excellent IT organization. They are a blue chip company with a great culture," said Rottler. "They were also a very educated customer because of the time they spent in the process. We dont comment on specifics of the deal, but we feel the contract is attractive from cash flow and margin/profitability perspective. We believe strongly that no one is served well by offering artificially low contract rates in the first two years."

Rottler suggested that EDS may have re-entered negotiations on the scaled-back plan. "All the players that had walked away or stopped the process were in the running here," he said.

In a prepared statement, Filippo Passerini, global business services officer at Procter & Gamble, said of the deal, "We have selected HP for its global IT expertise, services quality and cost, and collaborative approach, as well as our shared vision and values. HP is an industry leader and will help us substantially lower costs and accelerate innovation throughout P&G."

HP expects to finalize its deal with P&G by mid-May.

In a separate announcement, HP said it signed a memorandum of understanding for another large IT outsourcing contract with Telefon AB L.M. Ericsson. HPs Rottler characterized that deal as "very similar" to the P&G deal in its scope. HP will be Ericssons technology partner for its IT infrastructure, he said. That deal is expected to close by the end of the second quarter.

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