Dell paying a hefty premium for Perot Systems

Dr. Kris is spending the next two weeks communing with nature but because of the wonders of modern technology I was able to check the internet for a couple of moments before taking a hike in the redwoods.   For those of you interested in M&A deals, today Dell (DELL) offered $30 a share for Perot Systems (PER), the company that made H. Ross Perot a billionaire and household name. 

Before you even think of taking a position in this deal, consider that the analysts covering theses companies all feel that Dell is shelling out way too much moolah.  If I was a Dell shareholder, I’d be none too happy and would be on the phone to the board asking them what were they thinking?

Here’s a summary article from DealZone at Reuters: “With something like $10 billion in cash, Dell wouldn’t seem to be stretching itself to buy Perot Systems. But the $3.9 billion it is offering represents a 67 percent premium, so Dell shareholders should probably ask themselves whether Perot’s business is worth so much.

Perot is a business service company with a big component dedicated to health information. It was founded in 1988 by Ross Perot — the same Ross Perot who ran for U.S. president as an independent in 1992 and 1996.

Dell’s cash pile is burning a hole in its pocket. It has said it wants to step up acquisitions, and services businesses are a logical target area, with higher margins and steadier revenue than the business of building and selling computers that made Michael Dell (pictured in shades above) the tech mogul he is today.

But why does Perot command such a hefty premium? “We think this acquisition is expensive,” and even pricier than Hewlett-Packard’s purchase of EDS last year, said analyst Shannon Cross of Cross Research. She says the cost-saving benefits are few. Even Dell says cross-selling benefits won’t materialize until 2012.

“Dell investors should be outraged at paying such a large sum for such a small, vertical operation,” said Douglas A. McIntyre of Wall St 24/7.

Needless to say, I won’t be taking a position in this deal for the MANDA portfolio. 

Now back to nature…

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