Capgemini forms venture with TXU, wins $3.5B deal

The plan is to offer business process and IT services to energy companies

IT services provider Capgemini SA and Texas electricity and gas provider TXU Corp. announced yesterday that they have agreed to form a new company called Capgemini Energy Limited Partnership that will supply business process and IT services initially to TXU and later to other energy companies.

TXU, based in Dallas, will pay more than $3.5 billion over 10 years to the new company for services in areas such as IT, the call center, billing, human resources, supply chain, accounts payable, and finance and accounting, the companies said. About 2,700 TXU employees will be transferred to the new company as of July 1, Capgemini and TXU said.

TXU will own less than 3% of the company, and Paris-based Capgemini will own the rest, TXU spokeswoman Carol Peters said. TXU expects to improve the quality of the services it is outsourcing and reduce costs associated with them. Eventually, Capgemini Energy will provide its IT and business process services to other energy companies.

Capgemini Energy has committed to 15-second call-answer times for TXU electric service customers. It also promised to improve satisfaction rates by 30% and "realize significant savings" for TXU in 2005, compared with 2003 spending levels, the companies said.

TXU and Capgemini face several challenges in making the agreement and the new company work, said Rick Nicholson, a Meta Group Inc. analyst.

The spirit of partnership between the two companies is important, particularly in difficult times, he said. Otherwise, the relationship will degenerate into a typical vendor-customer relationship marked by finger-pointing and ill will. Capgemini Energy will also need to be good at managing its relationship with government regulators, which will be watching closely that it meets its service-level commitments and requirements.

Capgemini Energy will also have to do an extensive job of standardizing systems and processes in order to be able to offer services to other energy companies, Nicholson said, adding that this may be the thorniest issue facing the company.

Nonetheless, Capgemini and TXU have adopted the correct approach for this engagement, he said. "There are certainly challenges, but they have set this up to be successful," he said.

For Capgemini, the deal lifts its profile significantly in the U.S. energy sector, which it had been trying to enter for a long time, while TXU should be able to obtain the efficiency improvements and cost reductions it is seeking, Nicholson said.

Copyright © 2004 IDG Communications, Inc.

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