09/22/2009 (2:42 pm)
Dell to buy Perot Systems for $3.9 billion
Dell Inc plans to buy Perot Systems Corp for about $3.9 billion, paying a steep 67.5 percent premium to expand its technology services business and compete with Hewlett-Packard Co and IBM.
Perot Systems, a computer services provider founded in 1988 by former U.S. presidential candidate Ross Perot, would be the largest ever acquisition by Dell and comes after extended speculation about its M&A strategy.
Dell, which lags far behind HP and IBM in the services arena, is looking to buy a company with a strong focus on serving healthcare and federal government customers. It expects the deal to add to earnings in fiscal 2012, but some analysts thought the price tag may have been too high.
Dell said it would pay $30 per share for Perot Systems. Its Friday’s closing price was $17.91 on the New York Stock Exchange.
J.P. Morgan analyst Mark Moskowitz said the price is 1.4 times Perot Systems’ sales, compared to HP’s purchase of EDS for 0.6 times sales last year. That would make the acquisition a little expensive, although it was good for Dell to lessen its dependence on personal computers, he said.
“We do see the building block as being compelling, but the purchase price seems relatively rich,” Moskowitz wrote in a research note.
Perot shares jumped 65 percent to close at $29.56 while Dell shares fell 4.1 percent to $16.01.
The deal comes as large technology companies expand into higher margin IT services to secure stable and recurring revenues as computer hardware becomes cheaper allied insurance.
Dell is the world’s No. 2 maker of PCs, with roughly 60 percent of its revenue coming from that market. The company has been trying to diversify its range of offerings, and services currently comprise only around one-tenth of sales.
HP made a splashy foray into the services segment with last year’s $13.2 billion purchase of EDS, founded by Ross Perot in 1962. HP is the world’s No. 1 PC maker and No. 2 IT services player, behind IBM.
Kaufman Bros analyst Shaw Wu said Dell is finally taking a step to address some of its weaknesses, but it remains to be seen how much impact the deal will have as Dell’s combined services offering would still be much smaller than its rivals.
“This still doesn’t have quite the scale to compete … but it’s also not so outrageous it will be difficult to integrate,” Wu said.
FOCUSED ON HEALTHCARE, GOVERNMENT
Perot specializes in providing business processes and technology consulting services, with a strong client base among healthcare, government and other commercial segments. More than a third of its 23,000 employees are based in India.
Perot Systems estimates it is the largest provider of IT services to hospitals, operating in roughly 1,000 around the world. Around half its sales come in the healthcare sector, with another quarter in government services.
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