Procter & Gamble Scuttles EDS DealProcter & Gamble Scuttles EDS Deal

Procter & Gamble Co. is backing away from an $8 billion deal that would have seen the consumer-products company outsource the management of its entire back-office functions to struggling EDS. P&G says it will instead divide the contract into smaller pieces and accept bids from multiple vendors, including EDS.

P&G says the decision was based partly on EDS's earnings warning in September. A P&G spokesman says diversifying the contract will "minimize the risk" associated with using a single vendor in the volatile services market. In addition to its September warning, EDS last month lowered its fourth-quarter per-share earnings guidance to between 51 and 56 cents, down from 57 to 59 cents.

The P&G spokesman said the company, whose brands include Tide laundry detergent and Clairol hair products, will begin awarding the new contracts early next year after it issues a series of requests for proposals.

The news could open the door for others in the services market, including IBM Global Services. In a recent research report, Merrill Lynch analyst Steve Milunovich opined that "IBM is in better shape than EDS," noting that its services arm in recent months has actually stepped away from deals that it viewed as not sufficiently profitable. A spokesman for IBM could not immediately confirm whether the company would bid on the P&G business.