2nd UPDATE: Dell To Buy IT Service Provider Perot For $3.9 Billion
21 September 2009 - 11:29PM
Dow Jones News
Dell Inc. (DELL) agreed Monday to buy information-technology
service provider Perot Systems Corp. (PER), long seen as a Dell
target, for $3.9 billion as the world's No. 2 computer seller looks
to diversify away from its core personal-computer business.
The acquisition broadens Dell's current services offerings,
creating a company with $8 billion in services revenue, and seeks
to better position Dell among its more diversified rivals like
Hewlett-Packard Co. (HPQ).
"This deal significantly expands Dell's enterprise-solutions
capabilities and makes Perot Systems' strengths available to even
more customers around the world," said Michael Dell, Dell's
chairman and chief executive.
Dell will begin a tender offer to buy all the class A shares of
Perot for $30 a share, a hefty 68% premium to Perot's closing price
Friday of $17.91 as Perot's class A shares haven't been above $30
for more than a decade.
The deal is expected to close by the end of January but isn't
seen adding to Dell's earnings until fiscal 2012. Dell reported the
second quarter of its fiscal 2010 last month.
In premarket trading, Dell fell 5.3% to $15.81, and Perot
Systems added 66% to $29.69. Given the deal's high premium and
Dell's cash position, it's unlikely another bidder might approach
Perot.
Dell has felt pressure to expand its services business to better
compete with H-P and International Business Machines Corp. (IBM).
Perot will allow Dell to expand into more sophisticated services,
such as building and managing large, complex computer networks.
H-P, the world's largest computer maker, made a similar move
into services with its acquisition last year of Electronic Data
Systems, an earlier IT services company founded by Perot Systems
creater Ross Perot. H-P paid $13.9 billion for EDS, at a
comparatively lower premium of 33% to Dell's purchase of Perot.
Dell's buy of Perot "was a relatively expensive acquisition,"
Shannon Cross of Cross Research said, adding that Perot is a much
smaller acquisition than that of EDS by H-P and more of a "bolt-on"
for Dell. The higher price, she said, could also reflect that there
were few other services companies for Dell to purchase.
"There aren't that many candidates out there," she said.
The move follows months of speculation as to whom Dell, which
had $11.7 billion in cash as of July 31, would buy in order to fill
gaps or strengthen weak spots in its business products
portfolio.
The talk increased this summer after Dell hired David Johnson,
the former chief of mergers-and-acquisitions strategy at IBM, which
tried unsuccessfully to block the hiring in courts. Dell added more
financial firepower by selling $1 billion in bonds.
With Perot, Dell will be able to bolster Dell's
information-technology services portfolio and expand Perot's reach
farther across the globe. Perot had been seeking to expand
internationally to reduce its exposure to the U.S., and the two
companies already partner on some projects.
Perot will become Dell's services unit and will be led by its
current chief executive, Peter Altabef. Also, Dell's board will
consider Perot Chairman Ross Perot Jr. for a seat.
Last month, Perot said its second-quarter profit rose slightly
thanks to improved margins despite a drop in sales, but it gave a
third-quarter revenue forecast below analysts' expectations. For
2009, analysts on average project Perot's earnings to rise 2% to
$117.3 million and revenue to fall 9% to $2.53 billion, according
to Thomson Reuters.
Meanwhile, Dell posted a 23% profit drop last quarter as it
continues to suffer from weak spending in technology. For Dell's
fiscal 2010, which ends in January, analysts see earnings falling
22% to $2.08 billion and revenue dropping 15% to $51.63
billion.
Nearly 80% of Dell's revenue comes from corporate computer
buying, and corporations have been retrenching amid slumps in their
own businesses.
-By Jerry A DiColo, Dow Jones Newswires; 212-416-2155;
Jerry.Dicolo@dowjones.com
(George Stahl contributed to this article.)