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IBM signs $150 million IT services deal

Big Blue steals some business from rival Electronic Data Systems, inking a 10-year deal to consolidate and manage computer systems for credit card processor Certegy.

In a deal that steals business from rival Electronic Data Systems, IBM announced a 10-year, $150 million contract to provide information technology services to credit card processor Certegy.

The contract calls for IBM to consolidate, automate and manage a large portion of Certegy's mainframe operating systems and hardware operations in the United States. Using IBM's "on demand" services model, Certegy will pay IBM according to the volume of services it consumes. IBM already provides IT services for Certegy's United Kingdom and Australian operations.

For the contract, announced Friday, Alpharetta, Ga.-based Certegy decided to switch to IBM from EDS. Certegy said it will record a pretax provision of up to $10 million in the first quarter for early exit costs associated with severing the current EDS agreement.

Certegy said the IBM agreement can provide it significant cost savings and future operational flexibility. The company said it expects the conversion to IBM to be completed by the end of the third quarter, and to add 3 cents per share to annual earnings beginning in 2004.

EDS has experienced a string of troubles over the past several months, including a dramatic earnings warning in September, a formal SEC probe into the earnings warning and stock-hedging activity, and the revelation that the company has invested $430 million in a troubled contract. On Thursday, , with Dick Brown stepping down as chairman and CEO and former CBS CEO Michael Jordan taking the reins of the company.

Certegy also provides debit card processing as well as check risk management and check cashing services.