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Dell Acquisition of Perot Systems: A Prescription For Service Business

By Amarendra Bhushan for CEOWORLD Magazine Updated:September 22, 2009

Dell Inc (DELL) plans to buy Perot Systems Corp (PER) for about $3.9 billion. 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.

Goldman Sachs advised Perot Systems on the transaction. Morgan Stanley advised Dell.

Dell said on Monday it would pay $30 per share for Perot Systems, whose Friday’s closing price was $17.91.

Perot has 23,000 employees, about 65% in the U.S., with its largest offshore workforce in India at 8,000.

“Today’s announcement is the next step in formalizing a relationship that has flourished for some time,” said Perot Chairman Ross Perot Jr. “When my father founded Perot Systems he envisioned a global information-technology leader. The new, larger Dell builds on that promise and its own successes by taking Perot Systems’ expertise to more customers than ever.”

Under the agreement, PC and server maker Dell will acquire all outstanding common stock of Perot Systems for $30 a share in cash, a 65 percent premium over Friday’s closing price. Subject to the usual government approvals, the deal is expected to close in Dell’s November-January fiscal quarter.

The acquisition, expected to close between November and January.

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 make up only around one-tenth of sales.

The move is likely calculated to compete with Hewlett-Packard (NYSE:HPQ)’s acquisition of EDS and IBM (NYSE:IBM) Global Services solution, and while the acquisition could have been an immediate cause for concern among solution providers, most are cautiously optimistic about Dell bringing Perot’s services in-house.

Dell Enterprise CTO Paul Prince told eWEEK Sept. 21 that his company’s pending $3.9 billion acquisition of Perot Systems is a clear signal to the world about Dell’s overall strategy of bolstering its services offerings in order to establish itself as a full-blown enterprise IT supplier.

In other words, Dell wants to follow in the footsteps of IBM and Hewlett-Packard, and hopefully take away some of their considerable market share in the process.

Even though Dell ships about 85 percent of the laptops and desktops it makes to enterprises and offers plenty of services to go with them, it still has the reputation of being a consumer-oriented computer maker. That is the impression that Dell’s leaders want to change.

Hewlett-Packard Co. bought EDS last year for almost $14 billion and cut more than 25,000 jobs.

Perot Systems CEO Peter Altabef said he was making the same case to Perot employees.

“We just had a town hall meeting in Dallas and in Round Rock right now,” he said. “In both cases, the message is the same, and the discussion is the same. It’s about growth. These are two organizations that have very complementary skills and very complementary platforms.”

But Ross Perot Jr., the chairman of Perot Systems who will join Dell’s board when the deal is completed, said Perot Systems would essentially manage Dell’s services division.

“Michael’s vision is for Perot Systems to lead his services effort,” Perot said. He said the combined companies’ computer services work “will go from about a $2.8 billion business to an $8 billion business.

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