Perot Systems Corporation

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Perot Systems Corporation

12404 Park Central Drive
Dallas, Texas 75251
U.S.A.
(972) 340-5000
Fax: (972) 340-6788
Web site: http://www.perotsystems.com

Public Company
Incorporated: 1988
Employees: 6,000
Sales: $993.6 million (1998)
Stock Exchanges: New York
Ticker Symbol: PER
NAIC: 541511 Custom Computer Programming Services; 541512 Computer Systems Design Services; 51421 Data Processing Services; 541519 Other Computer Related Services

Perot Systems Corporation, based in Dallas and chaired by Texas billionaire H. Ross Perot, is a worldwide leader in information technology services and business solutions. The company helps businesses create and manage their technology networks, with services including consulting, systems integration and operation, and software development. The company works primarily in the energy, financial services, healthcare, and travel industries. Major competitors include Perot’s former company, Electronic Data Systems (EDS), which in 1984 became a wholly owned subsidiary of General Motors Corporation and then was spun off 12 years later.

Pre-Perot Systems —The Navy, IBM, and EDS: 1952-87

At the age of 19, a young Texan named H. Ross Perot received a much desired appointment to the U.S. Naval Academy. Although he valued his time in the military, he found it too restrictive and decided against building a career in the Navy. In 1952, while still in the Navy, he was recruited to be a salesman by International Business Machines (IBM). Initially he found their business style comfortable, but became frustrated after a time.

In January 1962 Perot already had fulfilled his entire annual sales quota because of a recent change in IBM’s commission structure. Not satisfied with the administrative job then offered him by IBM, he recognized an unmet need among IBM’s many computer customers. Most companies had few knowledgeable personnel to operate their new computer equipment. Perot wanted to offer skilled electronic data processing management services to these companies. He presented his ideas to IBM executives, but they were not interested.

Perot left the company and, on June 27, 1962 (his 32nd birthday) incorporated Electronic Data Systems (EDS) in Dallas, a company that would develop a business concept later termed “facilities management.” Perot spent the first five months canvassing the East Coast and the Midwest to find a first customer for his computer services company. He had bought wholesale computer time on an IBM 7070 computer installed at Southwestern Life Insurance in Dallas during the latter company’s idle hours (EDS would not acquire its own computer until 1965). Once he sold this time at retail, he was in business. Collins Radio in Cedar Rapids, Iowa, became EDS’s first customer and launched a new industry called information services. The company grew rapidly and employed many of Perot’s former colleagues at IBM.

On June 27, 1984, although the company never had a contract with an automobile manufacturer, EDS became a wholly owned subsidiary of General Motors Corporation (GM). GM needed EDS to coordinate and manage its huge, unwieldy data processing system and to cut its $6 billion annual data processing costs. Roger B. Smith, GM’s chairman of the board, thought Perot’s management style would be an asset to his giant corporation. The $2.5 billion purchase price was the largest ever paid for a computer services business. GM agreed to maintain EDS as a separate entity, keep key personnel, and issue a special class of common stock that would be tied to EDS’s performance. Perot retained managerial control of EDS and served on GM’s board of directors. Problems surfaced within a year when the differences in management style between Perot and Smith became evident. By 1986 the differences had become intolerable; GM paid Perot $700 million for his GM and EDS stock and asked him to depart and not hire any GM or EDS employees for at least a year.

Perot Systems: 1988-99

In June 1988, a year-and-a-half to the day later, Perot founded Perot Systems with eight EDS veterans, including former EDS leader Morton Meyerson. Almost immediately, the company landed a ten-year contract to cut costs for the U.S. Postal Service. However, because the GM separation agreement prohibited Perot from competing with EDS for profit until December 1989, Perot Systems worked for free for another 18 months. Lobbying pressure from GM resulted in Perot Systems losing the Postal Service contract, but generated enough publicity for the beset new company that Perot Systems was deluged with new contracts. The new company began to sink quickly, though, and not just because it was working without getting paid. Perot’s anti-NAFTA political speeches just as Perot Systems was working on ventures with Volkswagen de Mexico and Multibanco Mercantil Probursa alienated Mexicans and the deals fell through.

Rapid changes in technology and deregulation created new challenges for the company’s customers in the energy industry. Its work in the early 1990s with European utility companies provided unique insights into the requirements for deregulation of the industry in the United States. The company worked with regulated utilities, nonregulated and new market entrants, and entirely new market entities, providing solutions to address market restructuring and compliance and provide solutions for settlements and clearing systems, integrated supply chain management, trading and risk management, and transaction management systems.

In 1992 Perot stepped down as leader of the new company to devote more time to his unsuccessful first campaign for the White House, turning the company over to former EDS leader Morton Meyerson. Meyerson, who became CEO, moved the company away from computer outsourcing in an effort not to go head-to-head against EDS, which had since split away from GM and was rapidly becoming the number one company in that field in the world. Instead, Perot Systems would begin focusing on higher-margin consulting services. In 1994 the company acquired the Custom Development Division of Platinum Software, a financial software firm.

James Cannavino, former number two executive at IBM, joined the company in 1995, becoming president. He helped leverage a seven-year contract with Tenet Health Care, marking an early outsourcing of computer operations in the healthcare industry. That year, the company reincorporated in Delaware and added products and services in manufacturing equipment for the first time.

In its battle with EDS, Perot Systems also targeted small to mid-sized clients, including First National Bank of Tucumcari in New Mexico, North Side Bank and Trust Co. in Cincinnati, and Southside State Bank in Tyler, Texas, all of whom joined the company’s client list in 1996. Also that year, the company acquired four companies, among which were Technical Resource Connection, an object-oriented programming company, and CommSys, a telecommunications billing system developer. The company brought in $600 million in revenues for the year.

In February 1997 Perot Systems acquired Benton International, Inc., a consulting organization that pioneered the concept of electronic funds payments and that consulted to the largest financial institutions in the world. Benton, which got its start developing electronic funds transfer systems, evolved into broad expertise in alternate channel strategy and implementation, including such elements of electronic commerce as smart cards, credit/debit cards, and related networking infrastructures. With its acknowledged expertise in electronic commerce, Benton represented a strategic fit for Perot Systems’ growing Global Financial Services (GFS) group, which was focusing on serving leading banking institutions such as Swiss Bank Corporation, NationsBank, and Barclays Bank. Benton, which was established in 1978 by Jack Benton, retained its name and operated as a subsidiary. The acquisition also brought nearly 50 employees, a veritable “Who’s Who” list of clients, and offices in Tampa, Florida; New York; Buenos Aires, Argentina; Bogota, Colombia; and London.

The following month, Perot Systems purchased a controlling stake (70 percent) from SwissAir Corp. in Icarus Consulting AG, a Zurich- and Frankfurt-based management consulting firm that served the travel and transportation industries in Europe, including major European air carriers, forwarders, hotels, the German railway system, and the German Navy. Founded in 1988, Icarus had been owned 55 percent and 45 percent by SAir Group, the holding company of SwissAir, and Icarus’s management, respectively. Perot Systems also obtained a fixed option to purchase the remaining 30 percent from SAir Group over a three-year period. As an example of its work, Icarus conceived and implemented a new air cargo system that combined the services of SwissAir and Sabena Airlines. Under the unique arrangement, Sabena essentially sold its airline cargo space to SwissCargo, the SAir Group’s cargo arm, giving up marketing and operational costs in exchange for a guaranteed revenue stream. SwissCargo gained added capacity and market share and was able to utilize its existing sales infrastructure much more efficiently. The acquisition further expanded Perot Systems’ insertion into European markets, which accounted for 40 percent of the company’s revenue by that time.

Company Perspectives:

We listen attentively to our customers and to team members working directly with our customers. Every member of our team, including our CEO, is available 24 hours a day, seven days a week, to go anywhere, anytime, to serve our customers.

In June the company acquired Syllogic B.V., a leading technology company specializing in systems management, data warehousing, and data mining applications and services, based in the Netherlands. The acquisition expanded Perot Systems’ data warehousing and data mining skills in Europe. The company, which kept its name, was founded in 1991 and brought 125 employees in offices in the United States, Ireland, and the United Kingdom.

Nets Inc., the struggling Internet commerce company launched by Lotus founder Jim Manzi, was acquired by Perot Systems in June 1997. The acquisition brought 58 employees to the company and greatly accelerated Perot Systems’ strategy to deliver business-to-business electronic commerce systems, services, and online market ventures.

In a major step to expand its Health Care Group’s strategic consulting capabilities, in July the company acquired Stamos Associates Inc. (SAI), a 30-member healthcare consulting firm founded by Dr. Peter S. Stamos, former chief of staff to U.S. Senator Bill Bradley. The acquisition of the consulting firm, which specialized in the design and implementation of innovative healthcare business strategies for integrated delivery systems, hospitals, physicians, and insurers, brought additional clients throughout the United States, Australia, Canada, Sweden, the United Kingdom, and Malaysia.

Also in 1997, Cannavino stepped down from his position as president and CEO amidst rising costs and falling earnings. Meyerson took over in the interim while the company looked for a new leader. When Perot retook the helm without pay in November, Meyerson resigned as chairman. Immediately, Perot got busy shaking things up, revoking health benefits for same-sex partners, cutting expenses, reinstating drug testing, and pushing recruitment from the military. The company’s revenues reached $781.6 million, with a net income of $11.2 million, and added to its arsenal of products and services: computer software products and services in the fields of accounting communications systems and facilities management, and telecommunications and Internet products and services.

Throughout 1997 and 1998, Perot Systems forged strategic alliances with a plethora of diverse companies, providing IT services and solutions to each. These companies included The Bank of Ireland in the financial services industry; AT&T and WinStar in the telecommunications industry; National Car Rental and Eastern Pacific Airlines in the travel industry; and Physicians Online, The International Committee of the Red Cross, and Integrated Health Services in the healthcare industry.

In August 1998 the company filed to go public. Up to that point, Perot owned more than 40 percent of the company, and Meyerson owned ten percent. The company ranked 358th in the Forbes Private 500 list that year, with total revenue growing to $993.6 million (up 27 percent) and net income jumping to $40.5 million (up 261 percent). On February 1, 1999, the company’s stock began trading on the New York Stock Exchange.

Principal Subsidiaries

Benton International, Incorporated; Deutsche Perot Systems GmbH; HCL Perot Systems N.V.; HCL Perot Systems Private Limited (India); HCL Perot Systems Pte. Limited (Singapore); HCL Perot Systems (Mauritius) Pvt. Ltd.; HPS America, Inc.; HPS Europe Limited; Icarus Consulting A.G.; Icarus Consulting GmbH; Perot Systems A.G.; Perot Systems Asia Pacific Pte Ltd.; Perot Systems B.V.; Perot Systems (Canada) Corporation; Perot Systems Communication Services, Inc.; Perot Systems Europe (Energy Services) Limited; Perot Systems Europe Limited; Perot Systems Field Services Corporation; Perot Systems Financial Services Corporation; Perot Systems Holdings Pte Ltd.; Perot Systems Investments B.V.; Perot Systems (Japan) Ltd.; Perot Systems Monaco S.A.M.; Perot Systems Realty Corporation; Perot Systems S.A.; Persys Ireland Limited; PSC Government Services Corporation; PSC Health Care, Inc.; PS Information Resource (Ireland) Limited; RothWell International, Inc.; Stamos Associates Inc.; Syllogic Ireland Limited; Syllogic B.V.; Syllogic Limited; The Technical Resource Connection, Inc.