Systems Corp. has won a multimillion-dollar technology services contract from First Union Corp. - which is acquiring one of EDS' biggest customers, First Fidelity Bancorp. The outsourcing contract, announced Tuesday, is contingent upon Charlotte-based First Union completing its proposed merger with First Fidelity, which has headquarters in Lawrenceville, N.J. The $5.4 billion combination is expected be completed Jan 1. First Union's pact with EDS would supplant one of the industry's largest outsourcing agreements - the 10-year, $480 million system contract the Plano, Tex.-based company signed with First Fidelity in 1990. As part of that deal, EDS ran First Fidelity's data centers and helped consolidate systems of financial institutions the bank has bought in recent years. EDS also has an existing relationship with First Union, providing credit card account processing services. While its value was not disclosed, an EDS spokesman said the new contract would extend the company's existing agreement with First Fidelity by one year, to 2001. A First Union spokesman said the contract would not add to the estimated $270 million in restructuring charges necessary to complete the First Fidelity acquisition. When the merger was announced last June, First Union set the one-time restructuring charge at $140 million. But bank executives later raised the estimate in order to accelerate the integration of the two banks. Officials said they still expect to save about $90 million a year as result of the merger. In a related move, EDS and First Union announced they had formed a joint venture with Nova Information Systems Inc. to provide processing of bank card transactions for merchants. (See story on page 13.) "By extending First Fidelity's relationship with EDS, we believe we are gaining a valuable global leader in information services whose strengths complement those of First Union," said Austin Adams, First Union's executive vice president of automation and operations. "This agreement marks the beginning of a whole new chapter in our relationship with First Fidelity and First Union," said Bobby Grisham, president of the EDS business unit dealing with large financial institutions. "We believe our services can provide a competitive advantage for many areas within First Union's operations. We will assist the banks as they integrate their operations and provide ongoing technical and consulting services in the future." EDS is to provide the merged bank with consulting and systems integration services related to centralizing data processing activities, officials said. Also, the data and telephone networks at First Fidelity would remain under EDS' management. The First Union spokesman also said the bank expects to use EDS' systems integration capabilities as it makes other acquisitions and moves into emerging markets like electronic commerce. Many of the details regarding how and where systems would be consolidated are still being worked out, the spokesman added. One of those decisions is whether the combined institution would retain First Fidelity's main data center, located in New Brunswick, N.J. The merger partners already have decided to close First Fidelity's Philadelphia computer center and move those operations to Charlotte after the merger is consummated. Lawrence A. Willis, a systems outsourcing specialist with First Manhattan Consulting Group, said First Union could have opted to do away with the EDS-First Fidelity pact and pay the outsourcer a hefty exit fee. Instead, it chose to let EDS "transition from (data center) support to systems integration." Mr. Willis also noted that while large banks like First Union will continue to outsource some of their mainframe-based data processing operations, they are also increasingly farming out other parts of their automation infrastructure, particularly the installation and maintenance of personal computer networks.
