Early on Monday morning, Dell (NASDAQ: DELL) announced that it has agreed to buy Perot Systems (NYSE: PER) for roughly $3.9 billion. Perot is an information technology services company, which was created by former presidential candidate Ross Perot. Dell will offer $30 per share in cash for Perot, which represents a 68% premium over Perot's Friday close. Overall, the deal is reportedly worth $3.9 billion (according to Dell). The deal is expected to close in the quarter running from November to January -- Dell's fiscal fourth quarter.
Dell is looking to expand its IT services for businesses along with expanding its potential customer base. During Dell's quarterly earnings report, it stated expectations for a stronger second half of the year despite sector-wide computer demand.
Technically, Dell has spent the better part of 2009 trying to recoup some of the losses incurred during 2008. Furthermore, the stock currently enjoys a measure of support in the $16 region. In addition, the equity has eclipsed its 20-month moving average, which could now act as support if needed. That said, this trendline is descending through the $16 level, so the support is a double-edged sword.
The big question is the long-term effect of the acquisition. Remember that Dell's quarterly sales were down 22% from a year ago, and I am not sure that adding IT is going to help right away. As Dell is able to integrate Perot into its sales pitch to companies, it could help sell more computers. I guess I should have said "if" Dell can turn the Perot acquisition into sales, as there are no guarantees in this economy -- and Dell has just taken a major risk.
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Reader Comments (Page 1 of 1)
9-21-2009 @ 12:36PM
John W. Taylor said...
I have to agree that Dell has taken on quite an extensive risk here. How can they justify a 68% premium? What is Dell going to be able to do with Perot's services that will validate that level of spending?