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New EDS chief gets warm reception from Street

Analysts predict former Cable & Wireless CEO Dick Brown will quickly reenergize the world's second-largest services company.

Wall Street roundly applauded the hiring of former Cable & Wireless CEO Dick Brown as the new head of Electronic Data Systems, predicting he will quickly reenergize the world's second-largest services company.

Brown, revered for his turnaround track record at Cable & Wireless, could put a new shine on EDS's stock, which has continued to climb in recent days.

Shares of the $15.2 billion Plano, Texas-based company were trading today at 42.625, up from a 52-week low of 30.4375 yet far from this year's high of 50. Cable & Wireless stock dropped today, trading at 34.75, down 1.75 from yesterday's close of 36.5, indicating how sorely Brown will be missed, analysts said.

Investment firm BT Alex Brown today raised its rating on EDS to "buy" from "market perform," noting, however, that the company's earnings outlook remains "somewhat uncertain in 1999."

"EDS has gotten sleepy and bureaucratic," said BT Alex Brown analyst Ed Caso. "We see [Brown] changing a meaningful part of senior management in the next year. We see a high probability of a restructuring charge. We sense there will be a significant uptick in both acquisitions and divestitures and we see him moving to re-energize the organization, which has had lame-duck leadership for about five months or so."

Brown, 51, will succeed outgoing EDS chief Les Alberthal, who announced in August that he would leave once his replacement was named. Brown starts in mid-January.

EDS has positioned Brown, a 25-year veteran of the telecommunications industry, as an agent of change for the company.

In the 29 months Brown spent at Cable & Wireless, he rebuilt it through a frenzy of 21 acquisitions and deals worth an estimated $20 billion. He even made a eyebrow-raising bid forMCI Communications, though the deal ultimately went to WorldCom.

"He's not shy," Caso said. "He righted a very troubled ship and made 21 acquisitions quickly."

Industry observers expect Brown to pour that same energy into reviving EDS, which over the past several years has suffered falling profits and sagging stock prices caused by shrinking business from General Motors, which remains the company's biggest customer.

"Dick has an impressive record as a successful, results-oriented change agent, with a strong background in strategy, operations, and marketing," James Baker, III, chairman of the EDS board's governance committee, said in a statement. "Dick truly is the ideal executive to lead EDS into the next century."

In his new role, Brown will be responsible for filling the gaps in the company's leadership. Last week, chief operating officer Gary Fernandes announced his retirement, and the company still is trying to fill the CFO post, which was vacated nine months ago.

Brown's hire is the first step of "what should be a new strategy to reviving EDS' business," said Mark Wolfenberger, analyst at Credit Suisse First Boston. However, Wolfenberger, who rates EDS' stock a "hold," warned that the company's financial performance may be uneven over the next several quarters.