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Dell Makes $3.9B Buy to Expand into IT-Services Business

The computer maker's CFO calls the buy of Perot Systems an "anchor acquisition."

Dell plans to buy Perot Systems for about $3.9 billion in cash to get a stronger foothold in the information technology professional-services market, and grow beyond its status as a PC-focused business.

Dell has agreed to buy Perot’s outstanding Class A common stock for $30 per share. The company expects its latest acquisition to positively affect its earnings per share starting in 2012. In the meantime, Perot will become a wholly owned subsidiary of Dell as early as November, pending regulatory approval.

“We believe this is a critical acquisition in our strategy to transform the company,” said Dell CFO Brian Gladden during a morning conference call with analysts. “IT services will be a big part of our strategy, and we’re very focused on getting a great anchor acquisition, which we believe we did.”

CEO Michael Dell said the deal between the two Texas companies will answer some of his customers’ demand for new types of IT services, such as cloud computing, a new outsourcing concept that turns computers into utilities that access information and applications from the so-called cloud for fees.

Dell has been playing catch-up to its bigger competitors. For instance, Hewlett-Packard bought EDS for $13.9 billion a year and a half ago to expand its own IT global-services business. With $8 billion in revenue — based on Perot’s and Dell’s combined revenue from IT-services work during the past quarter — the merged business could “launch Dell in head-to-head competition with HP/EDS, IBM, and the like” on some deals, says Dane Anderson, vice president of research for IT services and sourcing at Gartner. However, considering that more well-known IT-services vendors hit multibillion-dollar revenue marks every year for the same type of work, it remains to be seen how strong a player Dell will be in the already crowded space, he adds.

According to Gladden, the new, integrated business will cost Dell more than $4 billion annually to run, and the finance chief expects to trim that amount by $300 million within the next two years.

For Perot Systems, which has been working with Dell for the past two years, the smaller company believes its new setup will expand its business for corporate clients, which make up 27% of its revenue, notes president and CEO Peter Altabef. The rest of its revenue comes from the health-care and government sectors.

Dell executives said they may make additional acquisitions to supplement their IT-services business after Perot is fully integrated.

Perot Systems, which reported $2.8 billion in revenue last year, was founded more than 20 years ago by Ross Perot, who is best known for running two unsuccessful, but noteworthy, presidential campaigns in the 1990s. It has 23,000 employees. Dell plans to consider appointing Perot’s son, Ross Perot Jr., to its board.

 

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