Dell agrees to buy Perot Systems for about $3.9 billion

September 22, 2009|Associated Press

NEW YORK — Dell Inc. will spend $3.9 billion for technology-services company Perot Systems Corp. in an attempt to expand beyond the personal computer business and compete more aggressively with Hewlett-Packard Co. -- which recently bought another tech-services company founded by H. Ross Perot.

Dell said Monday that it would offer $30 a share in cash for Perot Systems -- a 68% premium over its closing price Friday. Perot Systems' shares rose $11.65, or 65%, to close at $29.56.

Dell shares fell 68 cents, or 4.1%, to $16.01.

Former presidential candidate Perot, 79, serves as chairman emeritus of Perot Systems, which he founded in 1988. According to an April regulatory filing, Perot and related trusts controlled at least 25% of the company's stock. The company did not respond to a request for comment on Perot's stake.

Perot had already made a fortune from founding Electronic Data Systems Corp. in 1962 and selling it to General Motors Corp. in a 1984 deal worth $2.5 billion. HP bought EDS last year for $13.9 billion as it, too, tried to augment its services offerings and diversify beyond hardware.

In a conference call with analysts, Dell's founder and chief executive, Michael Dell, said Perot Systems would serve as an "anchor" acquisition for a global information-technology services business.

Plano, Texas-based Perot Systems would bring Dell more than 1,000 customers, including the U.S. military and Department of Homeland Security. About 48% of Perot Systems' revenue comes from the healthcare industry and 25% from government. Last year, Perot Systems earned $117 million on sales of $2.8 billion.

Dell's services business is more basic than those of its larger competitors, and its revenue comes mainly from the hard-hit PC business. As a result, Dell's profit has been slumping, down 23% in the second quarter.

Perot Systems would add consulting and other kinds of computing services to Dell's lineup.

"This would, at least from a product standpoint, put them definitely more competitive with HP and IBM," Kaufman Bros. analyst Shaw Wu said. "It's a step in the right direction."

Wu said Dell's hardware business could benefit from exposure to Perot Systems' customers, while Dell's broader services line may look more attractive to customers seeking one provider for multiple technology needs. Combining the businesses could also help Dell find new ways to cut costs.

HP and Dell are reaching out beyond PCs -- a business IBM exited in 2004 -- as the recession, competition and fluctuating component prices have hurt PC firms' profit margins.

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