How Ross Perot became GM's biggest shareholder -- and a bitter battle took off

Jamie L. LaReau Jul 09 2019

Former Presidential candidate Ross Perot stands in front of an historic USS Constitution "Old Ironsides" American Flag in his offices in Plano, Texas on Sept. 27, 2012.  Perot, the Texas billionaire who twice ran for president, has died, a family spokesperson said Tuesday, July 9, 2019. He was 89.

 

Former Presidential candidate Ross Perot stands in front of an historic USS Constitution "Old Ironsides" American Flag in his offices in Plano, Texas on Sept. 27, 2012. Perot, the Texas billionaire who twice ran for president, has died, a family spokesperson said Tuesday, July 9, 2019. He was 89. Michael Mulvey for USA TODAY

 

In the early 1980s, H. Ross Perot would become General Motors' largest individual shareholder and engage in a massive clash of egos with GM CEO Roger B. Smith.

Perot and Smith's deal initially looked like a match made in heaven, but it culminated with Perot declaring, "We've got to nuke the GM system," amid exasperation with what he considered GM's sluggish and bloated bureaucracy.

Perot, who twice ran for president as a third party candidate, died early Tuesday at the age of 89. 

A simple plan

 

In 1984, GM bought Electronic Data Systems Corp., the company Perot had founded, for $2.55 billion.

Perot, a graduate of the Naval Academy, started EDS in 1962 with $1,000 after working for IBM for five years.

Perot's loyalty to his company was well known. He made front-page news in 1979 when he sent a team of 15 commandos to Tehran, the capital of Iran, and started a mass prison break so he could free two EDS employees.

 

H. Ross Perot is shown in this Oct. 30, 1968, file photo, as Electronic Data Systems Corp. chairman. In 1984 Perot, founder of EDS, sold his company to GM for $2.5 billon. On Monday, Aug. 7, 1995, GM announce it will spin off EDS, making it an independent company.

 

H. Ross Perot is shown in this Oct. 30, 1968, file photo, as Electronic Data Systems Corp. chairman. In 1984 Perot, founder of EDS, sold his company to GM for $2.5 billon. On Monday, Aug. 7, 1995, GM announce it will spin off EDS, making it an independent company. Associated Press

 

GM wanted EDS for several reasons. First, its computer expertise would allow it to handle GM's bookkeeping, help computerize factories and integrate GM's computer systems, according to a 1989 New York Times article.

Smith also liked the entrepreneurial culture at EDS, which he believed would help GM recapture its status as a premier industrial power.

For Perot, the deal delivered a premium price for his EDS stock and the chance to play a major role in GM's turnaround. He became GM's largest individual shareholder.

The merger also allowed EDS to potentially become the greatest computer organization in the world. 

The deal seemed simple: Perot would continue to lead EDS, which would operate as an autonomous unit within GM. GM Class E stock was created to preserve a separate identity for EDS in the market. 

It was crafted to be a win-win for both sides, so what could go wrong?

Confusion reigns

 

Almost from the start, the arrangement was doomed to escalate into a colossal battle of egos as Smith and Perot faced ambiguous lines of power.

Smith, as GM's leader, was Perot's boss, yet EDS remained Perot's charge.

 

DFP Moore (17).JPG

 

General Motors Chairman Roger Smith poses with a Geo Storm at the company’s headquarters in July 1990. (Photo: Richard Sheinwald/Associated Press)

Perot wanted independence for EDS, but Smith demanded subservience to GM. And Perot's entrepreneurial spirit that once so attracted Smith clashed with the GM bureaucracy.

Soon, there was dissension in the ranks. GM workers knew little about the merger in advance. Likewise, EDS employees became GM employees virtually overnight.

Perot and Smith disagreed over even the basic elements of their deal, such as employees' pay. Perot wanted to dictate EDS workers' salaries, but Smith argued the amounts were too high compared with GM's payment structure. In one case, Smith complained that a top EDS executive drew a higher salary than Smith did as chairman, the New York Times reported.

Those clashes aside, some good came out of the merger. EDS’s revenue more than tripled to nearly $3.5 billion within a year of merging with GM. Within two years, employment nearly tripled to more than 40,000, Dallasnews.com reported in 2012.

A bad breakup

 

Smith downplayed the conflict publicly, insisting that he and Perot had only minor differences. But after months of feuding, Perot resigned from the board and as chairman and CEO of EDS in 1986. GM's board of directors approved the buyout of all of Perot's GM stock for about $750 million at that time.

Perot put the money in escrow for two weeks to give GM a chance to reconsider its "morally wrong" buyout plan that would close 11 factories and throw 30,000 people out of work, the Los Angeles Times reported in 1986.

"I've got to live with myself," Perot said. "Why should I take this money? It would be morally wrong."

But GM had no change of heart. It said that EDS would be incorporated into a new division along with subsidiaries Hughes Aircraft Co., Delco Electronics and GM's defense operations. 

GM and Perot were set to cut ties, except one more dispute arose, this time over the terms of the buyout agreement, specifically a noncompete clause. GM and Perot disagreed about how and when he could start up a rival company, Perot Systems. The legal wrangling eventually ended with both sides going their separate ways.

“The entire process since 1984 has been emotional,” EDS chairman Les Alberthal told a reporter from Dallasnews.com.

“All these personal relationships have been torn apart by one man’s decision to jump the gun and start a new company,” he said.

About 150 of Perot System’s first 190 employees came from EDS, according to news reports. There was a "real divide" among workers, said Todd Carlson, a former EDS executive, in the Dallas News article. “It was a tough time for a lot of people.”

Indeed. In a bizarre twist, among Perot's former EDS colleagues to sue him on GM's behalf was one of the two men Perot rescued from Iran years earlier.

 

Former US presidential candidates Bill Clinton (L), Ross Perot (C) and President George Bush (R) shake hands with the panelists after the conclusion of their final debate in East Lansing, Mich. on Oct. 19, 1992

 

Former US presidential candidates Bill Clinton (L), Ross Perot (C) and President George Bush (R) shake hands with the panelists after the conclusion of their final debate in East Lansing, Mich. on Oct. 19, 1992 J. DAVID AKE, AFP/Getty Images

SOURCE: Detroit Free Press

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