Concurrent with the SDRC purchase, EDS will offer to buy the 14 percent of its Unigraphics Solutions (UGS) subsidiary that is publicly held. The offer to the shareholders of UGS contemplates a price of $27.00 a share or total cash of approximately about $170 million.
The two organizations have complementary product sets. Together they provide the most comprehensive digitized Product Lifecycle Management (PLM) software and services in the industry. PLM offerings digitally produce and share product planning, design, manufacturing and distribution information for collaboration via local networks and the Internet.
Both companies would be combined under the UGS name to become EDS’ fifth line of business. Tony Affuso, current UGS president and CEO, would become president of the new line of business. UGS would be a leader in digitized PLM, with more than $1 billion in annual revenues.
In the last 24 months, we have seen the beginning of a network-based revolution in the way products are designed, developed and manufactured, said Dick Brown, EDS chairman and CEO. UGS has given us a window on this change and on the emergence of product lifecycle management, where digitized information is shared instantly and globally. Now is the time to move quickly and decisively to capture opportunities in this space.
Brown noted the SDRC acquisition would bring EDS 7,000 clients, 85 percent of whom are new to EDS, and greatly expand relationships with companies including Ford, Mazda, Honeywell, Nissan and Nokia.
Most importantly, we gain substantial software capability in a rapidly emerging market with significant ‘pull-through’ revenue for services from our other four lines of business, Brown said.
The combination of the two companies would create a new EDS line of business with:
A leadership position in digitized Product Lifecycle Management. The PLM market is estimated at $18 billion in 2001. EDS expects to achieve revenue growth rates of 16 20 percent annually over the next five years in the new line of business.
Market leadership in collaborative product commerce offerings for the key automotive and aerospace industries.
A deep product portfolio spanning all PLM segments: collaborative product commerce, product data management, e-manufacturing and mechanical computer aided design.
Accelerated development of Internet collaborative commerce offerings for a variety of vertical industry segments.
UGS is a double-digit growth business in one of the most promising markets in the digital economy, said Paul Chiapparone, EDS executive vice president of operations and chairman of UGS. These transactions give EDS the portfolio of products and services for increased opportunities in consulting and systems integration. Moreover, they build on EDS’ capabilities in key industries, making us the leading provider of total product lifecycle management solutions and services in the automotive and aerospace segments.
Both transactions are expected to close on or about the end of the third quarter, pending applicable U.S. and foreign regulatory clearance.
The SDRC acquisition and the UGS share purchase are expected to be slightly dilutive to EDS in Q4 2001 and for 2002. The company also expects to take a modest one-time charge for purchased in-process research and development in the quarter when the SDRC acquisition closes. Under recently proposed accounting standards for business combinations the acquisition and share purchase would be neutral to EDS earnings in 2001 and accretive in 2002 and thereafter.
UGS has always focused on providing customer value and delivering on our promises, said Tony Affuso, president and CEO of UGS. Our first priority is to protect our customers’ investment and to support their existing requirements. In addition, the new UGS is now in a very strong position to deliver digitized product lifecycle management solutions to ensure our customers are on the leading edge in creating next-generation products at Internet speed.
SDRC, based in Milford, Ohio, is a leader in collaborative product management software. Its software enables manufacturers to collaborate on product design over the Internet, speeding time-to-market, reducing development costs and enabling virtual teams to operate across oceans, continents and time-zones. The company offers software and services in mechanical design, product data management, and business integration.
We are excited about the opportunity to be a part of the new, market-leading UGS organization, said William Weyand, SDRC chairman and CEO. As part of EDS and the new UGS, our customers can look forward to a next-generation collaborative software suite and consultative support unequaled in the industry.
SDRC is the world leader in product data management solutions with over 400,000 seats of its Metaphase software deployed by industry leaders in aerospace and automotive. SDRC had revenues of $452 million in 2000 and $113 million in the first quarter of 2001, is a global business with locations in 22 countries and 2,500 employees.
UGS, which is headquartered in Cypress, California, had revenues of $526 million in 2000 and operating income of $72.9 million. In the first quarter of 2001, UGS had revenues of $136.4 million and operating income of $19.9 million. UGS (then known as Unigraphics) was purchased from McDonnell Douglas by EDS in 1991 and taken public in 1998.
The SDRC acquisition is structured as a merger that will be conditioned upon, among other things, approval by two-thirds of SDRC’s stockholders, regulatory approvals and other customary conditions.
EDS’ proposal with respect to UGS is for the acquisition of the publicly held shares in UGS by means of a cash tender offer. The UGS Board of Directors has appointed a special committee of independent directors to evaluate the terms of the EDS offer on behalf of the minority shareholders and acquisition will occur only after an agreement to acquire the remainder of the equity in UGS.
