Huge Procter & Gamble Contract Back In EDS's Hands?Huge Procter & Gamble Contract Back In EDS's Hands?

EDS has confirmed that it is again negotiating a 10-year outsourcing contract with Procter & Gamble Co. valued at as much as $8 billion. In July, EDS broke off similar talks with P&G, saying it didn't like the terms of the deal. Back then, dark-horse bidder Affiliated Computer Services Inc. stepped into the breach, but it, too, has since backed out of what would have been a reputation-making deal for the $3.1 billion outsourcer.

The contract is huge--$700 million to $800 million a year to manage human resources and benefits, payroll, and finance--so big, in fact, that there was speculation that it might be too big and too risky for the second-tier firm. That seems to be borne out by Affiliated: In a press release, the company said the financial, operational, and cultural risks were too high.

Ultimately, it came down to cultural fit, says Lesley Pool, Affiliated's senior VP and chief marketing officer. There were mixed feelings among the 5,000-plus P&G employees who would move from P&G to Affiliated. "That makes integration risky," Pool says. She characterized the deal as an acquisition, not just an outsourcing contract, and the natural conclusion to a process P&G had begun a year and a half ago. At that time, the consumer-goods company created a shared-services center in order to lower costs. Now it's looking to sell the center to a contractor.

Affiliated reaffirmed its fiscal 2003 earnings estimate Tuesday. Its shares closed slightly up Wednesday, at $45.02. EDS on Wednesday cut its outlook for the second half of the year, citing softness in the market. EDS closed down sharply in trading after the market closed.