Perot Systems: Dell Buys Ross Perot's Company For $3.9 Billion

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

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

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

Former presidential candidate H. Ross Perot Sr., 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 percent of the company's stock, though the beneficiary of those shares was not clear. 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. Hewlett-Packard 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 CEO, Michael Dell, said Perot Systems will 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 the Department of Homeland Security. About 48 percent of Perot Systems' revenue comes from the health care industry and 25 percent 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 profits have been slumping, down 23 percent in the second quarter.

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Perot Systems would add consulting and other kinds of computing services, such as "systems integration," to Dell's lineup.

"This would, at least from a product standpoint, put them definitely more competitive with HP and IBM," said Kaufman Bros. analyst Shaw Wu. "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.

However, Dell's tech-services business would still be relatively small; EDS had revenue of $21 billion before HP bought it. IBM Corp.'s services revenue was $59 billion last year.

Nor will the acquisition give Dell much of an international presence in services. "If they're really going be strategic in services, they're going to need a footprint that's more global than Perot," Jefferies & Co. analyst Joseph Vafi said.

Analysts have been expecting acquisitions from Round Rock, Texas-based Dell, which hired IBM's former mergers and acquisitions chief this year and has raised almost $1 billion by selling debt securities since March.

HP and Dell are reaching out beyond PCs – a business IBM exited in 2004 – because it's getting harder and harder to make money there. The recession, fierce competition, fluctuating prices for components like memory chips and display panels, and a shift to cheaper little laptops called "netbooks" have all hurt PC makers' profit margins. HP's PC and services businesses have roughly the same revenue, but the services operation had three times as much profit in the past nine months.

Following the acquisition, which is expected to close by the end of January, Perot Systems would become Dell's services unit. Dell said it expects additional acquisitions to expand on the business but emphasized that it is looking to hold on to Perot management, including CEO Peter Altabef.

Ross Perot Jr., the chairman of Perot's board, will be considered for a director slot at Dell, the company said.

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AP Technology Writer Jessica Mintz in Seattle contributed to this report.

Comments

[TransitionCompanies]

At The Transition Companies, we believe that acquiring companies, especially ones that have successfully cornered a specific audience, is often the most efficient and effective way to grow a company. Dell is looking to not only grow organically but to shift their current strategy and begin focusing on the services sector of industry. Through acquisitions like the recent Perot Systems deal, Dell will catapult themselves into the computer services sector allowing them to quickly compete with HP and IBM. “We can definitely expect to see continued acquisitions from Dell", says Mike Ryan of The Transition Companies, “as they cast their net deeper into the computer services sector allowing them to rapidly expand their customer base

[GrumpyOldGeek]

Yawwwwnnn.

Doing business in the US and/or having to pay employees in the US is too expensive. It is a stuggle to compete with businesses based in almost any other country. The semi-monopolistic US businesses that get away with violating anti-trust laws will probably survive best. This, of course, knocks my business out of the running. This has gone on since the 1950's. Democrats file antitrust charges and even get antitrust convictions and court-ordered breakups (such as Microsoft). Then the republicans stop enforcement and investigations and overrule the courts' breakup orders. Then it happens again.

Many of the talented employees that are laid off by the biggies show up as contractors to the very same companies within days of their layoff. Blackwater is nearly all ex-military, for another example. No need to provide health insurance, lower employee taxes, almost no exposure to labor laws, no problem with OSHA inspections, etc...

Get it?

[OC4Obama4Pres]

Then maybe doing business with the U.S. should be too expensive too?

[angryliberaluser]

If no justice is served the American People are going to get more restless, and the next time something happens...­..there could be real UNREST! WE have to hold people accountable for their actions.

hat tip to: http://www.iamned.com

Ignorance = Negligence­....... They knew what was going on the whole time, all the while padding their pockets. The U.S. crony-Capitalist justice system is a f**king joke. There must be some way we can outsource for justice against these criminals.

[msjimmied]

Interesting stock activity prior to announcement.

http://www.zerohedge.com/article/dear-sec-your-viewing-pleasure-obvious-perot-front-running

[Dailypolitics55]

this market does nothing but go up every day, week ,and month

good articles 4 slow news day: http://www.iamned.com

[Jaywalkker]

The value in either Perot Systems or Dell and their outsourcing to India (agreed by me) is not the real news here. The real news is that this is a HUGE business buyout, backed by credit and finances that we haven't seen in a year. Previously, the front page mergers and acquisitions of 2009 have all been pharma, which is fronted because health services aren't going anywhere but up. These are 2 tech companies in a very hard hit sector. This is very good news for the economy.

Trend? No. Positive signpost? Maybe.

[newTheory]

Perot Systems is based in Guadalajara and provides a range of outsourced tech services to companies in the U.S., including desktop support, infrastructure management, and engineering services.

Remember when Ross talked about the "giant sucking sound" ? when he ran for president?
This is a natural acquisition for Dell which already has their 800 # routed to India.

[mrcontinental]

I think ole Ross would have made a pretty decent president, he's always had a golden touch and common sense.

[RaycerX]

The company I work for uses Perot and they pretty much suck. Bad support. lack of knowledge, slow response times, lack of flexibility in adopting new technologies, etc.. Wonder if this will change anything for the better.

[OC4Obama4Pres]

It won't change anything for the better. I worked for that company for years. This merger just puts together two of the biggest outsourcers in the planet. The only company that beats Perot in outsourcing to India is Dell.