Less than a month after eBreviate won a major contract to provide auction technology to Volkswagen, the two founders of the EDS subsidiary, which runs online auctions, have left amid accusations, counter-accusations and rumors of a sale.
"Niul [Burton, eBreviate's president] was asked to leave due to a fundamental difference in business ethics," says EDS spokesman John Clendening. "Simply put, his ethics weren't our ethics."
Clendening says Burton "violated the EDS code of business conduct," but declined to elaborate.
Asked about Clendening's charges, Burton described them as "totally untrue" and said he will contact his lawyer.
Burton points out that in a July 27 press release, EDS said only that Burton left "to pursue new opportunities." EDS also announced in that release that Tom Slaight, a VP from EDS' A.T. Kearney consulting unit, will take over as interim president.
Walnut Creek, Calif.-based eBreviate was set up as an EDS subsidiary in January 2000. FreeMarkets, the leading online business-to-business auction site, had just conducted a wildly successful IPO, and EDS had planned to spin eBreviate out from A.T. Kearney and eventually take it public.
But the IPO market went cold last year, and EDS began to undertake a $1.2 billion cost-cutting plan. Late last year, the company retained Greenhill, a New York-based M&A specialist, to find a buyer for eBreviate, which was losing money.
EBreviate competes with FreeMarkets, Moai and other companies that provide technology for running online auctions. It has won deals to provide technology to the U.S. Navy, Home Depot, Volkswagen and others. But EDS doesn't break out eBreviate's financials, so it's not clear how much revenue these deals have brought in or when the unit might start turning a profit.
EBreviate co-founder Sarah Pfaff said that beginning last fall, EDS became increasingly controlling. The parent company asserted its right to approve promotions, salary increases and even travel by eBreviate staff.
In late June or early July, Pfaff received an e-mail from a senior EDS executive prohibiting her from signing any new deals that would involve future expenses. Pfaff says she found this requirement unworkable. "Since we hosted our software for our clients, every contract involved new expenses," she said.
"We were working really hard at building the business and making progress," she added. "But it was a death of a thousand cuts. Niul had enough and resigned in mid-July. They asked me to take over."
Pfaff said she initially agreed to take the position but reconsidered after sleeping on it. "I had questions about the support EDS was going to give us," she said.
A source close to the situation, who requested anonymity, says EDS is negotiating to sell a piece of eBreviate to i2 Technologies, a leading supply-chain software company that has been building up its electronic sourcing capabilities.
According to the source, i2 would take an equity stake in eBreviate in exchange for control over the development of its auction technology. Burton and Pfaff opposed the plan, the source said, arguing that it would leave eBreviate as little more than a sales organization for an i2 product.
A spokesman for i2 declined to comment on whether it is in negotiations to buy a stake in eBreviate. EDS spokesman Clendening also declined to comment, saying simply that "EDS is always assessing strategic alternatives for its businesses."
Clendening said EDS has invested $30 million in eBreviate and is committed to the business. He said EDS has already begun a search for a full-time president to run eBreviate, which has also lost its CTO, VP of business development and two other members of the management team in the past two months.
