Sabre, EDS get approval for giant outsourcing deal

Sabre Holdings Corp. and Electronic Data Systems Corp. today expect to complete a multibillion-dollar outsourcing deal and IT asset sale, after announcing on Friday that the U.S. Department of Justice (DOJ) had approved the March agreement between the two companies with some "minor adjustments."

As part of the deal, EDS will take over the management of Sabre's internal IT systems under a 10-year, $2.2 billion contract and acquire the Fort Worth, Texas-based company's airline technology outsourcing business for $660 million. About 4,200 Sabre employees, mostly in the U.S., are due to transfer to Plano, Texas-based EDS once the transaction goes through (see story).

EDS is also buying Sabre's IT infrastructure assets along with the outsourcing unit, and the two companies plan to jointly market technology offerings to the travel and transportation industries. Sabre said it's retaining about $108 million in net working capital related to the operations that EDS is buying, bringing the total value of the sale to $768 million.

The outsourcing operation generated about $600 million in revenue for Sabre last year, out of $2.6 billion in total revenue for the company. Sabre now plans to focus primarily on its flagship travel reservations business, plus a companion software suite and a reservation-oriented hosting unit that's separate from the one being bought by EDS.

The main change demanded by the DOJ was for EDS to retain its own airline reservation system instead of transferring it to Sabre as originally planned, the companies said. Changes were also made to the joint marketing agreement between the companies to enable EDS to independently operate and sell its system, called the Shared Airline Reservations System, to users.

The deal also includes Sabre's existing outsourcing contracts with American Airlines Inc., US Airways Group Inc. and other airlines. But American said after the agreement was announced that it planned to bring development of key applications related to revenue management and flight capacity planning back in-house, while letting EDS take over management of its data center operations, network services and other application development functions.

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