NEW YORK (CNN/Money) -
Xerox Corp. is extending its Internet Technology contract with Electronic Data Systems in a deal worth $1.5 billion over the next five years, the companies said Wednesday.
In exchange, EDS (EDS: up $1.84 to $53.00, Research, Estimates) has agreed to dismiss a lawsuit against the copier maker and has named Xerox (XRX: down $0.11 to $9.59, Research, Estimates) its preferred global provider of document systems with a separate five-year contract. Though Xerox declined to reveal the total value of that deal, the company said a $50 million piece of it involves helping EDS fulfill its contract to supply IT services to the U.S. Marine Corps.
"Both companies share a strong focus on digitization. We will continue to support Xerox's operations, and join them in developing relevant solutions for our clients and customers," EDS Chairman and CEO Dick Brown said.
EDS sued Xerox two-and-a-half years ago for breach of contract over a portion of their original 10-year agreement, Xerox spokeswoman Christa Carone said. The suit was about to go to trial until Wednesday's announcement.
"They were concerned about one of the issues in the contract, but all along Xerox denied any wrongdoing," Carone said.
The new arrangement extends that 10-year contract, initially signed in 1994, to 2009. Additionally, Xerox now will provide EDS with all its internal printing and copy-related services. Xerox also will install its Phaser color and black-and-white network printers and Document Center digital multifunction systems at about 300 military sites worldwide as part of EDS' $6.9 billion military contract.
"It's a positive in that it seems they've resolved problems with their IT supplier and brought in some new business, but I don't think it really changes anything," said Peter Ausnit, an analyst at Deutsche Banc Alex. Brown Inc. "If you have to characterize it as anything, it's another sign of operational issues being resolved."
The announcement comes a day after Xerox said it had raised more than $1 billion from a convertible securities offering in addition to previously announced financing of $1.3 billion from GE Capital.
The financing injects much-needed cash into the troubled company, which has been struggling in recent years to catch up with the shift from traditional copying services to digital printing.
Xerox has sold assets, cut jobs, shut down business units and halted dividend payments this year in efforts to stem losses.