Dell agrees to buy Perot Systems for US$3.9B

Perot will become Dell's global services unit

Dell has agreed to buy Perot Systems for around US$3.9 billion in cash, and intends to make the company its global services delivery division, the companies said Monday.

The deal will allow Dell to expand its range of IT services, and potentially allow it to sell more hardware to existing Perot customers, it said.

It will also allow Dell, in the future, to address customer demand for next-generation services including cloud computing, said CEO Michael Dell in a conference call with analysts.

Dell is counting on its international reach to turn Perot into a global services company, Dell CFO Brian Gladden said during the call.

Perot Systems is one of the largest services companies serving the health-care sector, from which it derives about 48 percent of its revenue, its CEO Peter Altabef said during the call. Around 25 percent of revenue comes from government customers, he said. Perot is already working at increasing its international revenue: on Friday it announced a 10-year deal to outsource IT operations for Indian hospital group Max Healthcare.

Dell's rival Hewlett-Packard expanded its own global services unit with the acquisition of EDS for $13.9 billion in May 2008. EDS was founded by H. Ross Perot, who sold the company to General Motors before going on to found Perot Systems, of which his son is now chairman.

Over the last four quarters, Dell and Perot together had revenue of $16 billion from enterprise hardware and IT services, with $8 billion coming from enhanced services and support, Dell said. Perot's contribution to that is relatively small: In 2008, the company reported total revenue of $2.78 billion.

At $30 per share, Dell's offer represented a significant premium over Friday's closing price of $17.91 for Perot Systems shares. In after-hours trading, the stock traded at $29.70 early on Monday morning.

The boards of Dell and Perot agreed to the terms of the transaction on Sunday, they said. Dell expects to complete the deal in its November-to-January fiscal quarter.

Dell expects that overlaps between the two companies will allow it to cut Perot's costs by between 6 percent and 8 percent, Gladden said during the conference call.

Upon completion of the acquisition, Dell plans to make Perot Systems its services unit, and will put Altabef in charge of the unit. It also expects Ross Perot Jr., chairman of the Perot Systems board, to be invited to join the Dell board of directors.

The services unit will fit alongside Dell's existing divisions for selling to large enterprises, government customers and small and medium-size businesses. Dell created the three divisions in a major reorganization of its business sales teams last December, shifting from a geographic structure to one aligned with customer types.

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Peter Sayer

IDG News Service
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