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Dell's $3.9B Perot Systems Buy Aims to Diversify

Dell buys Perot Systems
Dell (NASDAQ: DELL) is doing a tech version of the Texas Two-Step with Plano, Tx.-based Perot Systems, grabbing the IT services firm in an acquisition that's worth $3.9 billion and is designed expand the hardware maker's reach.

Under the terms of the purchase agreement, Dell will commence a tender offer to acquire all of the outstanding Class A common stock of Perot Systems for $30 per share in cash. The transaction is expected to close in Dell's November-January fiscal quarter, pending customary government approvals.

Perot Systems provides IT services, applications, technology, infrastructure, business processes and consulting. The company has a large client base in health care, government and other commercial segments.

Round Rock, Tex.-based Dell said the acquisition will better position it for long-term growth by enabling it to provide a broader range of IT services and solutions and optimize how they're delivered. Dell will also be able to supply its own computers to Perot System customers.

"We consider Perot Systems to be a premium asset with great people that enhances our opportunities for immediate and long-term growth. This significantly expands Dell's enterprise-solutions capabilities and makes Perot Systems' strengths available to even more customers around the world," Dell CEO Michael Dell said in a statement. "There will be efficiencies from combining the companies, but the acquisition makes such great sense because of the obvious ways our businesses complement each other."

Dell isn't the first hardware giant to eye the synergies with IT services: Last year, HP acquired EDS for $13.9 billion -- a deal that began paying off earlier this year. And IBM has famously grown its IT services business to the point that hardware make up only a slim portion of Big Blue's overall business.

That hardware makers are looking to new avenues for sales may not be surprising, considering the ongoing woes afflicting their core businesses -- due both to the recession and to other trends, like the burgeoning popularity of lower-margin offerings like netbooks.

Second-quarter sales for Dell fell 22 percent from last year to $12.8 billion. They were up 3 percent sequentially from the $12.3 billion Dell reported in Q1, however.

Meanwhile, the latest research indicates that the PC market is still slumping. Market research firm iSuppli predicts that global PC shipments will decline to 287.3 million units in 2009, down 4 percent from 299.2 million in 2008.

iSuppli had previously forecasted 0.7 percent growth in PC shipments for the year.

"An annual decline in unit shipments is highly unusual in the PC market," Matthew Wilkins, principal analyst for computer platforms for iSuppli, said in a statement. "Even in weak years, PC unit shipments typically rise by single-digit percentages. The last decline -- in 2001 -- was a 5.1 decrease in unit shipments due to the extraordinary impact of the dotcom bust, which caused inflated IT spending levels from the previous years to collapse."

Another research firm recently reported a similarly grim outlook for global PC shipments. Worldwide PC shipments totaled 68.1 million units in the second quarter of 2009, a 5 percent decline from the second quarter of 2008, according to preliminary results from Gartner.

Still, the market performed better than Gartner had expected: In June, Gartner had forecast second quarter PC shipments to decline 9.8 percent.

Future of Perot Systems

Based on current estimates, Dell expects its purchase of Perot Systems to be accretive to its fiscal 2012 GAAP earnings.

Once the acquisition is complete, Perot Systems will be led from Plano by Peter Altabef, Perot Systems' current CEO.

At the same time, Dell also said its board of directors are expected to consider Ross Perot Jr., Perot Systems' chairman of the board, for appointment to the Dell board.

"This transaction represents a great opportunity for our company and our associates," Ross Perot Jr. said in a statement. "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."