Dell agrees to acquire Perot Systems for $3.9 bn

‘This significantly expands Dell’s enterprise solutions capabilities’

Dell Inc agreed to buy Perot Systems Corp for $3.9 billion, undertaking its biggest purchase ever to compete with International Business Machines Corp and Hewlett-Packard Co in computer services.

Dell, the second-biggest maker of personal computers, offered $30 a share in cash, about 68 per cent more than Perot’s closing price September 18. The acquisition probably will boost profit in fiscal 2012, Round Rock, Texas-based Dell said in a statement today.

Chief Executive Officer Michael Dell is pushing into computer services as consumers and companies curb PC purchases to cope with the economic slump. Larger services units helped IBM and Hewlett-Packard withstand the recession better than Dell, whose sales slumped 22 per cent last quarter. The new services business would have annual sales of about $8 billion.

“This significantly expands Dell’s enterprise solutions capabilities,” CEO Dell said in the statement. “The acquisition makes such great sense because of the obvious ways our businesses complement each other.”

Once the transaction is complete, Perot Systems, based in Plano, Texas, will become Dell’s services unit. The purchase price is more than twice what Dell paid last year for EqualLogic Inc, which was the computer maker’s biggest acquisition until now.

Perot Systems jumped as much as $11.89, or 66 per cent, to $29.80 in trading before US exchanges opened. Dell, which ranks second to Hewlett-Packard in PC sales, fell as much as 5.6 per cent to $15.75.

The acquisition of Perot, founded by former presidential candidate H Ross Perot, mirrors Hewlett-Packard’s purchase of Electronic Data Systems Corp for $13.2 billion last year. EDS, the world’s second-largest computer services provider after IBM, helped Hewlett-Packard increase services revenue 93 per cent last quarter. Sales in the PC unit fell 18 per cent.

Dell has relied on cost reductions to help prop up profit amid the recession. The company, aiming to save $4 billion a year, has farmed out 40 per cent of manufacturing. Still, profit dropped 23 per cent last quarter.

Perot, which sells services to industries including health care, reported an 11 per cent drop in sales and a 3 per cent gain in net income last quarter. The company expects to benefit from the US government’s plans for electronic health records, Peter Altabef, CEO of Perot, said in an April interview.

IBM’s sales fell 13 per cent last quarter, while Hewlett- Packard’s total revenue dropped about 2 per cent. The companies have benefited from long-term services contracts to maintain corporations’ computers and networks.

The Perot acquisition, while not subject to a financing condition, will need government approvals and the satisfaction of other conditions, Dell said. Dell expects to close the deal in its November-January quarter.

Perot’s Chairman, Ross Perot Jr, may join Dell’s board of directors. Goldman Sachs Group Inc provided a fairness opinion for the acquisition, Dell said. Perot agreed to pay a termination fee of $40 million to Dell if it breaches the agreement.