EDS eyes piece of Newtrend joint venture.

Electronic Data Systems Corp. is negotiating to acquire a piece of the hotly contested Newtrend banking software business from Computer Associates International Inc.

Sources within EDS have confirmed the talks, which assume that Computer Associates, the world's largest applications software company, will complete its planned takeover of the joint venture it had formed with Newtrend Group of Orlando.

The fate of that bank software venture has been uncertain since early July. As Newtrend Group cast about for a buyer, Computer Associates announced that it would exercise its right of first refusal and acquire the 50% it did not already own.

A 90-day waiting period will expire next week, allowing the giant software firm to Close the deal.

An acquisition by Plano, Tex.-based EDS would neatly settle some of the issues that arose from the not-altogether-friendly takeover of the Newtrend business. EDS presumably would get the part of Newtrend that focuses on smaller institutions, allowing Computer Associates to reclaim the larger-scale, mainframe-based software that it initially contributed to the partnership.

Executives at smaller banks - some of whom had expressed some concern about their servicer being swallowed up by such a large corporation - will likely see EDS as a more comfortable fit.

Newtrend and Computer Associates formed their partnership in May 1911. It comprised the Miser software originally targeted at thrifts, the Infopoint line for commercial banks, and Cube, a newer, core processing system for credit unions.

The deal benefited both sides: Computer Associates got more ready access into the financial industry for its Infopoint software, while Newtrend Group got a springboard into the larger-bank market.

Although the business found success in the highly competitive bank software market - executives recently reported $94 million in annual revenues - the partners disagreed often and heatedly over how it was to be run and who held the reins.

Problems surfaced more than a year ago when Computer Associates sued to end the partnership and regain control of its Infopoint products. The software company claimed it was left out of key management decisions, even though both partners were equally represented in Newtrend's leadership.

Computer Associates, which is based in Islandia, N.Y., and has a reputation for litigiousness, ratcheted up the battle this March with a second lawsuit. Accusing Newtrend Group of misrepresentation and fraud, it said Newtrend executives had approved acquisitions and other vital transactions without consultation, and had generally ignored Computer Associates, business strategy.

Newtrend officials did little to hide their disdain for Computer Associates and its methods. A month before the second suit was filed, as the banking software joint venture, known as Newtrend L.P., appeared poised to go public, Newtrend L.P. chief executive Robert E. King said Computer Associates was simply using the lawsuits "to get control of the company." Newtrend L.P. controls the Newtrend Group.

"They use litigation as a negotiating tactic," Mr. King said in a February interview. "We've been running this business for 10 years and we don't intend to be chased off."

Both Mr. King and Newtrend chief operating. officer Robert E. Lund - who also had spoken out against Computer Associates - have kept silent on the issue since July.

Ironically, Computer Associates had one of its more notable legal wrangles with EDS, over transfer fees for software licensing.

EDS struck the first blow in late 1991, suing Computer Associates for charging allegedly excessive fees when EDS wanted to extend use of Computer Associates software to additional data centers.

Computer Associates, in turn, slapped EDS with a suit in January 1992, claiming that the outsourcer's expanded usage was tantamount to software piracy.

This May, the companies agreed to drop their suits and sign a 12-year contract. And now, it appears they may be ready to do business once again.

"The mutual hostility between CA and EDS seems to have ended," said William P. O'Connor Jr., an analyst with Fourteen Research. "You need to deal with CA if you want to do what EDS does."

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