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EDS, Sabre sign multibillion-dollar transaction

Sabre increases focus on core businesses to drive higher growth; EDS becomes the number one IT service provider for airline industry

Johannesburg, 14 Mar 2001

EDS and Sabre today announced the signing of three agreements, building on both companies` strengths and creating a new business model to better serve the needs of the airline industry, travel agencies, travel suppliers and business and consumer travelers.

Key components of the transaction include:

  • Acquisition by EDS of Sabre`s airline infrastructure outsourcing business and internal IT infrastructure assets for $670 million. Sabre will also retain net working capital of $108 million, bringing the total value of the agreement to Sabre to $778 million;

  • Sabre awards a 10-year, $2.2 billion service contract to EDS to manage Sabre`s IT systems;

  • Agreement between EDS and Sabre to jointly market IT solutions and services to the travel and transportation industry;

  • Approximately 4,200 Sabre employees will transition to EDS. The transaction takes full advantage of both companies` strengths. Sabre focuses on its core leadership areas of travel distribution, marketing services and software products, and positions itself for faster growth and more profitability.

EDS becomes the number one provider of global IT infrastructure services to the airline industry, adding the strength of carriers like American Airlines and US Airways to its existing list of premier airline clients. These clients include Continental, AeroMexico, Mexicana, British Airways, Virgin Atlantic and America West.

This transaction will expand EDS` footprint in one of the economy`s growth segments - strategic infrastructure outsourcing. Further, the transaction produces significant synergies for both EDS and Sabre and positions both companies for global market growth. The transaction is subject to customary government approvals, with closing expected by mid-year.

With the cash proceeds and expected savings from the outsourcing agreement, Sabre expects the transaction to be slightly accretive to its earnings for 2001 and accretive in 2002 and 2003.

EDS expects the transaction to be neutral to its earnings per share in 2001 and accretive thereafter. EDS expects significant additional revenue potential from its strengthened leadership position in the airline industry, further enhancing the economics of the transaction.

The transaction combines Sabre`s software portfolio and travel marketing and distribution expertise with EDS` processing scale and integration capabilities. In joint marketing approaches, Sabre and EDS will offer airlines new strategic solutions that enhance Sabre`s portfolio of products with EDS` full spectrum of technology, business process and consulting offerings. Sabre will also be able to increase R&D investments to develop next-generation applications for travel agencies, travel suppliers and online travel sites for both consumers and corporations.

"This transaction is a substantial win for EDS shareholders. It capitalizes on our global IT infrastructure scale and strengthens EDS` position in an industry in which IT spending is estimated at $9-$10 billion this year," said EDS Chairman and CEO Dick Brown. "This is what EDS does best - managing this kind of business by operating it and leveraging it through our global technology infrastructure for maximum efficiency."

"With this series of transactions, Sabre expects to generate faster revenue and earnings growth for our shareholders," said William Hannigan, chairman, president and chief executive officer of Sabre. "We will focus our resources and investments on the high growth areas of travel marketing and distribution and software products, and continue to drive fundamental changes in the industry through superior technology, product development and new marketing services."

As part of the transaction:

  • EDS will acquire Sabre`s airline infrastructure outsourcing assets, resources and contracts, as well as internal IT infrastructure assets, for $670 million. Sabre will retain net working capital of $108 million. The sale will include Sabre`s outsourcing contracts with leading airlines such as American Airlines and US Airways. The acquired business generated about $600 million in revenues for Sabre in 2000. The transaction will include all of Sabre`s data centers and data management assets and resources -- including its Tulsa, Oklahoma, data center, one of the largest real-time processing facilities in the private sector -- as well as Sabre`s desktop and mid-range computer management systems. These assets are used both for Sabre`s outsourcing and Web hosting businesses and for transaction processing.

  • Sabre will retain its core travel marketing and distribution business, including intellectual property and assets, as well as other businesses that are highly synergistic to the core business. Those retained businesses include its applications software products suite, software intellectual property and reservations hosting business, which were part of the company`s Outsourcing and Software Solutions business unit, and other emerging business activities.

  • Sabre will outsource to EDS the management of its IT systems, enabling Sabre to focus on its core competencies. The agreement is expected to generate cost savings for Sabre. Projected revenue from this outsourcing agreement for EDS is valued at approximately $2.2 billion over 10 years. EDS will provide a full range of IT outsourcing services to Sabre, including data center management, applications hosting, selected applications development, data assurance and network management.

  • EDS and Sabre will collaborate in marketing efforts, which are expected to provide both companies access to new customers and business development opportunities. The agreement will enable Sabre to further penetrate both the airline and travel marketing distribution markets. Sabre and EDS will jointly market Sabre`s world class portfolio of airline software solutions, combined with EDS` global technology capabilities, e-business consulting and channel development expertise and its A.T. Kearney high-value consulting practice. As part of the joint agreement, EDS will contribute approximately $20 million over the next two years for product development in Sabre`s software business, in particular to adapt Sabre`s airline software portfolio to an Applications Service Provider model. EDS expects to profit from this investment through a revenue-sharing agreement.

As part of the joint marketing agreement, EDS intends over time to merge its airline solutions software portfolio with Sabre`s. EDS will continue to develop and operate these products as part of the outsourcing contract. Additionally, EDS has agreed to move all of its travel bookings to the Sabre system and will also implement Sabre`s GetThere corporate booking platform throughout its organization.

About 4,200 Sabre employees, located mostly in the United States, are expected to transition into employment with EDS upon closing of the agreement. "We`ve run an outstanding infrastructure outsourcing operation, so our employees will be an excellent addition to the EDS team," Hannigan said.

"EDS has a long history of successfully transitioning employees into our company," said Brown. "We welcome Sabre employees to a new career and new possibilities with EDS."

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EDS, the leading global services company, provides strategy, implementation and hosting for clients managing the business and technology complexities of the digital economy. EDS brings together the world`s best technologies to address critical client business imperatives. It helps clients eliminate boundaries, collaborate in new ways, establish their customers` trust and continuously seek improvement. EDS, with its management consulting subsidiary, A.T. Kearney, serves the world`s leading companies and governments in 55 countries. EDS reported revenues of $19.2 billion in 2000. The company`s stock is traded on the New York Stock Exchange (NYSE: EDS) and the London Stock Exchange. Learn more at www.eds.com