EDS creates $1.5 billion Internet fund

Electronic Data Systems Corp., the world's No. 2 computer services supplier, Friday said it was establishing an Internet venture fund with up to $1.

Electronic Data Systems Corp., the world's No. 2 computer services supplier, Friday said it was establishing an Internet venture fund with up to $1.5 billion, in one of the largest such undertakings by a major computer company.

The new business, EDS-A.T. Kearney Ventures, after EDS's (NYSE: EDS) consulting arm by the same name, will focus its investments in so-called business-to-business firms that link companies with their suppliers and business partners via the Internet.

Keeping up in the Internet economy
Most of the companies the fund plans to finance over the next five years will be either EDS consulting clients or alliance partners. When fully financed, the fund will have $1.5 billion, the company said.

The move to cash in on the Internet gold rush is the latest effort by the slow-growing provider of computer technical and consulting services to stoke its growth and compete more effectively for business in the age of Internet commerce.

Toward that end, EDS has hired new management, begun shedding non-core businesses and sought to further diversify its client base over the past year.

"EDS sees the need for innovative services and opportunities to be developed to help further its own offerings and to better serve its clients,'' Dick Brown, EDS's chairman and chief executive, said in a statement. "The fund will foster the development of these services.''

First investments
The fund will be co-headed by Rick deNey, EDS senior vice president of corporate strategy and a former investment banker, and David Asper, an A.T. Kearney vice president. The unit will have offices in Plano, Texas, New York, London and Menlo Park, Calif., a town that has become known as ``Wall Street West''.

EDS also named the fund's first investments: CoNext and Tradex Technologies Inc., both companies make software that allow businesses to buy their supplies online.

The investment of $10 million in Atlanta-based Tradex came none too soon as Ariba Inc., the largest maker of Internet procurement software, Thursday scooped up Tradex in a deal valued at $1.86 billion in stock.

Nine former employees arrested
EDS declined to disclose the size of its investment in CoNext. The other half will be funded by outside investors, it said.

That news was clouded by the arrests of nine former EDS employees Friday on charges they had conspired to defraud three state governments out of $38 million. The scheme allegedly involved creating bogus documents to convince the states that abandoned financial property, such as unclaimed dividends, belonged to EDS Global Financial Markets Group clients.

EDS said it notified authorities when it discovered that the company and a few clients may have been victims of improper conduct by a small group of employees. The states involved were New York, Massachusetts and Delaware.

The news fueled a substantial decline in the company's shares in trading Friday on the New York Stock Exchange, where they fell 4-11/16 to close at 59-3/8.

EDS was founded by Ross Perot in 1962. General Motors Corp. bought the company in 1984. GM spun off EDS in a public stock offering in 1996.