Dell plans to buy Perot Systems for about $3.9 billion, paying a steep 67.5 per cent premium to expand its technology services business to compete with Hewlett-Packard and IBM.
The deal for Perot, a computer services provider founded by former US presidential candidate Ross Perot, comes as large technology companies expand into higher margin IT services to secure stable and recurring revenues as computer hardware becomes cheaper.
Dell, which had indicated its intention to step up acquisitions, said it would pay $30 per share for Perot Systems, which compares to its Friday's closing price of $17.91 on the New York Stock Exchange.
Perot shares jumped to $29.68 in morning trading while Dell shares fell 40 per cent to $16.02, with some analysts questioning whether the high price tag was justified.
"We think this acquisition is expensive," said analyst Shannon Cross of Cross Research, who said the deal is pricier by comparison than HP's purchase of EDS last year.
JP Morgan analyst Mark Moskowitz also said the acquisition seemed expensive, although it was a good step for Dell to lessen its high reliance on personal computers.
"We believe the deal should be a good stepping stone to diversifying beyond Dell's historically high-reliance on PCs," he said. "We do see the building block as being compelling, but the purchase price seems relatively rich.
If approved, Dell will pay 1.4 times sales for Perot Systems, versus HP's purchase of EDS for 0.6 times sales last year."
Dell said the acquisition would help it provide a broader range of services, particularly to large enterprises including in the healthcare and government segments. Dell expects the deal to add to its earnings in its fiscal year 2012.
Perot specializes in providing business processes and technology consulting services, with a strong client base among healthcare, government and other commercial segments.
It also has a strong global presence, with over a third of its employees based in India.
Perot, founded in 1988 by Ross Perot, who twice ran for US president, is expected to become Dell's services unit. It will be run by Peter Altabef, the current chief executive of Perot Systems.
Dell said the deal may open the door to the sale of Dell PCs to Perot's clients, but emphasized that the main target was the expansion in IT services.
"We will significantly expand our already important enterprise solutions capability and enhance our position in some of the fastest growing customer segments," Dell chief executive Michael Dell told analysts on a conference call.
Reuters