Just about everyone who covers media is talking about whether a potential Comcast-GE deal for NBC Universal will kick off a round of consolidation in media.

One executive — one very smart executive — who doesn’t think we’re in for a tidal wave of mergers is Viacom’s Philippe Dauman. (Word is Dauman earned a perfect score on the SAT — at the age of 13). After a speech at Executives’ Club of Chicago on Tuesday, we asked Dauman about consolidation.

“As far as we’re concerned, we ‘re focused on growing our brands, growing our business. We have tremendous brands with a lot of room for growth both in the U.S. and internationally. It’s a big opportunity for us.

“We’ve been involved involved in a lot of consolidation in our corporate history. The record of success in media consolidation has not been all that great for the most part so for ourselves we think the better strategy is to grow organically.”

But what does Dauman think about about the rest of the industry? To that question, he noted that “all of us in the traditional media business have seen the pitfalls” of big mergers, but Comcast may decide to chase a deal because of its unique circumstances. He didn’t elaborate, but we all know that Comcast has longed for more content for quite some time. The structure of the deal reportedly under consideration may work in Comcast’s favor since it doesn’t have to issue any equity.

Dauman isn’t the only smart guy in the media industry of course. Time Warner chief Jeff Bewkes made similar though slightly more cutting comments about the prospect of the Comcast-NBC deal last week and about what it said about success of previous big media mergers.

Dauman was more diplomatic.

“There’s a unique set of circumstances here that won’t necessarily in and of itself trigger a wave of other activity,” Dauman said.

 So much for emerging-market solidarity.

A proposed $24 billion deal between Bharti of India and MTN of South Africa has fallen apart, not for the usual issues of price or control, but national ego.

The apparent sticking point was that South Africa was eager to retain MTN's national character and had approached Indian authorities to consider a dual-listed entity, a structure that Indian laws currently do not allow.

The opportunity for a landmark deal in southern economic cooperation, one that would have created the third-largest wireless operator in the world, looks lost. After several failed attempts, it is the credibility of their respective governments, not the companies themselves, that is left in doubt.

The message from the South African government is that international buyers can invest in, but not control, the country's companies. UK mining conglomerate Xtrata has been a two-time loser there, having abandoned a takeover plan for Lonmin Plc, then met with roadblocks in its offer to buy Anglo American.

India has been more than willing to help its biggest companies push onto the multinational stage in cars, steel and technology. But international companies looking to buy into India have received rough treatment as well.
  
Every country seems quite happy to have their companies do the buying, but no one wants to see its national heroes sold.

Western countries have used a mix of justifications, from competition to national security, to torpedo attempts by China to buy such prized assets as Rio Tinto or Unocal. The French went as far as to declare yogurt-maker Danone a strategic asset to block a takeover by PepsiCo of the United States.

Beyond the mutual recriminations between Bharti and MTN and their respective governments, the question now is what happens next. The two companies left open the possibility they might find a way to resume a deal. But recent history is not promising.

Bharti and MTN revived talks four months ago, a year after previous negotiations broke down over which executive team would control a merged mobile phone giant with more than 200 million customers across India, Africa and the Middle East.

Bharti could accomplish some of what it is after by stepping into the bidding for rival African and Middle East player Zain of Kuwait. But this has its own political and financial hurdles.

MTN's options look less promising. A foreign buyer seems like wishful thinking now. The No. 2 South African mobile phone company may have to content itself with the rapid growth taking place in its African and Middle East markets. The South African government is happy to allow it to diversify offshore.

But the road to south-south economic cooperation has been shown to be rockier than the tentative Bharti-MTN deal had promised.

You can read some of Eric's recent columns here.

(Photo credits: Reuters/Mike Hutchings, Reuters/Ajay Verma and Reuters/Mike Segar)

I was rather surprised yesterday to see an e-mail from Ogilvy PR pitching an interview with Dave Booth, the Chairman President of Global Sales and Marketing at Computer Sciences Corp, only a couple of hours after Xerox announced its $6.4 billion planned purchase of Affiliated Computer Services.

After all, CSC — an IT services company that competes with ACS, and has a market value of $8.1 billion — was the first company that came to bankers’ and analysts’ minds when I asked them who else could be in play, as tech companies look to buy into new growth opportunities.

Given how market sentiment works, any comments from the chief senior executive of a potential acquisition target like CSC could easily move the stock. As a rule, that’s why, companies typically don’t comment on rumor or speculation about themselves. So naturally, an on-the-record interview with the CSC chairman executive wasn’t something I could pass up.

The e-mail offered:

…(T)he opportunity to hear comments from Computer Sciences Corp. (CSC). As you might know, CSC is a marketplace contrarian that can offer a POV on the other side of the coin - staying independent.
CSC anticipates greater interest from those clients that value the objectivity of a technology-independent approach. With one less independent firm in the marketplace, CSC’s position is strengthened as a global, technology-independent option for clients.

I let Ogilvy know of my interest, and waited, and followed up, and waited. By the late afternoon, I figured the pitch was too good to be true because CSC had thought the better of it. Sure enough, the e-mail that eventually turned up in my inbox, said: “CSC now prefers not to comment.”

Wonder if that was a PR learning experience.

(Photo: CSC.com)

Update: A CSC spokesman called on Tuesday to say Dave Booth is not chairman, but president of global sales and marketing at CSC. I have updated this post to include the correct title.

The U.S. computer services industry is back in favor, after a decade of struggling to cut costs and compete with offshore firms from India and elsewhere. At least that would be the obvious conclusion to draw from a recent string of multibillion-dollar deals.

Xerox has agreed to buy Affiliated Computer Services for $6.4 billion while Dell is paying $3.9 billion for Perot Systems. They are picking up where Hewlett-Packard left off when it paid $13.9 billion to buy Electronic Data Systems in 2008.

But what's driving these deals is not a bet on the improving growth prospects of the services industry. Instead, the buyers value computer services companies more as sales pipelines for their own products.

Take Xerox, which has struggled for years to move beyond copiers. The idea now is to manage information in both printed and paperless form. ACS is a leader in processing health claims and student loan payments for governments. It helps commercial clients cut the costs of payroll or human resources processing.

So don't think of this deal in terms of the traditional revenue synergies used to justify technology mergers. It's about helping commercial and government clients cut costs, a tight margin business in the best of times.

For while demand for services has stabilized as the economy recovers, there's little sign of any broad-based growth surge returning. There's no end to the need for services firms to continue to restructure, replacing labor in high-cost markets with technically savvy workers in lower-cost ones.

The computer services market is defined by its two poles: At the top, IBM is the model of the globally integrated services firm that can supply hardware, software and low-cost labor as needed. Rising up are such aggressive Indian software services firms as Infosys, Tata, and Wipro and smaller players in other low-cost nations, including China and Eastern Europe.

Yet times are tough, even for the upstarts. Indian services firms that enjoyed revenue growth north of 30, 40 or 50 percent earlier this decade now face growth of 5 to 10 percent. IT budgets have dwindled and cost control is the order of the day.

Caught in the middle are the services firms that have failed to adopt new labor-saving technology and offshore service delivery. ACS, Perot and to a lesser extent EDS were all slow to embrace the offshore trend. While each has belatedly moved to expand overseas in recent years, this is not their strong suit. Instead, all three have increased their share of the market for politically sensitive federal, state and local government contracts.

Even after the recent mergers, deal-making in the sector is far from over. Big names like Accenture, Computer Sciences Corp and Cap Gemini remain in play, as do dozens of niche players in services like payroll, data center automation and healthcare information.

Who might be on the prowl? Dell, for one, has said Perot is only a start, and it will still be sitting on a cash horde of $9 billion. Xerox, on the other hand, says ACS will be its one big deal. IBM, as the market leader, can afford to be opportunistic here, but could be barred for antitrust reasons from mega-deals in the sector.

Look for other buyers to emerge from hardware and software vendors like Oracle or even deal-shy SAP.

It's hard to see intra-industry consolidation, say a merger between Accenture and CapGemini. And Indian services companies have shown themselves reluctant to overpay for services consultants they will likely replace with their own lower-cost workers.

But never underestimate the capacity of desperate companies to do desperate things.

You can find some Eric's previous columns here.

(Photo credit: Reuters/Catherine Benson)

-- Eric Auchard is a Reuters columnist. The opinions expressed are his own --
  
By Eric Auchard

LONDON, Sept 21 (Reuters) - Dell Inc has made a solid move into computer services by buying Perot Systems, even if the hefty price Dell is paying is hard to justify on Perot's standalone prospects alone. 

And the price looks very rich indeed.  Dell is spending nearly $4 billion in cash -- a premium of 68 percent to Perot stock's recent close -- to buy a slow-growing U.S. computer services firm focused on health care and government clients.
  
That's 1.4 times Perot's expected 2010 sales, or roughly two times more than rival Hewlett-Packard paid when it acquired EDS in a $13.2 billion deal last year.

But the Perot deal is best understood as arming Dell with a sales force to push its broad computer hardware lines and expanding software and services offerings out to healthcare and government customers. The acquisition lets Dell neatly expand into these markets without indulging in mega-dealmaking of the sort it has no history doing. And Dell will still be left with $9 billion in cash for any additional deals.

Electronic health records are key driver of Perot Systems growth

Acquiring Perot's Web hosting and remote services businesses fills a missing link in Dell's strategy to deliver software-based services remotely rather than more costly labor-intensive ones.
  
Dell's current services businesses generate $5.7 billion a year, two-thirds of which is technical support for Dell hardware clients. Of the remaining one-third of Dell's services business, most is made up of managed network services, and the stub is for consulting.
  
These are areas where Perot gives Dell a leg up. In return, Dell provides a pipeline of business with global customers that Perot is only starting to try to tap.
  
Perot Systems represents a big bet by Dell on the growth of the health care information technology business, which produces half of Perot revenues, and government work, roughly another 20 percent or so of sales. These are growth markets, however the debate over President Barack Obama's national health care plan ends up.
  
And for a company founded by Ross Perot Sr. -- a former U.S. presidential candidate known for his strong views on job losses to Mexico -- Perot Systems has increasingly had a global focus.
  
Perot has been investing heavily in India, its biggest employee base outside the United States, which still accounts for 87 percent of its business, and more recently in China, where it has won promising business contracts. (Perot Sr. controls a quarter of the company's shares and stands to take away more than $1 billion from Dell's offer, while his son, Ross Jr., now serves as active chairman.)
  
The short term is not as promising: Perot sales are poised to decline 9 percent in 2009 over last year, while profits remain flat. But fortunes are expected to rebound in 2010, when analysts expect 9 percent growth in sales and profit.
  
Buoyed by health care reforms, electronic health records and other moves to use technology to wring efficiencies out of government and commercial health organizations, Dell says it sees plenty of growth potential.
  
Dell should be congratulated for avoiding many of the integration headaches of buying a broader-based computer services companies, many of which remain weighed down by huge staff headcounts in the face of low-cost competition from offshore services firms. I wrote in July of Dell's wider services strategy in a column entitled "A brutal logic to Dell's reinvention."
  
Shortly after acquiring EDS, HP set in motion plans to cut 24,600 employees, or more staff than Perot Systems employs across its whole company. Acquiring EDS has diminished HP's ability to do new deals for the time being.
  
Dell can also find ways of wringing further costs from Perot, but the deal is more about expansion than simple merger synergies.
  
Most important, buying Perot keeps Dell's powder dry for further acquisitions to fulfil its stated strategy of expanding into services and software makers from its base in computer hardware. It can pursue other mid-sized and smaller deals and have cash left in the bank.

-- At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. –

For previous columns, go to http://blogs.reuters.com/eric-auchard/

(Photo credit: REUTERS/Hyungwon Kang)

(Update: Dell PR misspoke about Johnson’s responsibilities, and we’ve made changes below as indicated.)

Dell, which announced plans to buy Perot Systems for $3.9 billion on Monday, completed the deal without help from an executive in charge of mergers and acquisitions.

It’s a touchy subject for Dell, which earlier this year named David Johnson to its executive team, poaching him from IBM where he served as head of M&A. IBM filed a lawsuit, saying that Johnson violated a non-compete agreement by taking the job with Dell. But IBM failed to persuade a judge to bar Johnson from working at Dell while the litigation is pending.

CEO Michael Dell told reporters on a conference call that Johnson was not involved in the Perot transaction “in any way,” noting that the two companies had held discussions back in 2007, while Johnson was still at IBM. “It was not a new idea,” Dell said.  But the discussions heated up again over the summer, after Johnson joined Dell.

Reuters asked Dell spokesman David Frink how Dell could negotiate a $3.9 billion deal, its biggest ever, without involvement from Johnson, its head of M&A. He said that Michael Dell and Chief Financial Officer Brian Gladden had led a group of other executives who worked on the deal.

He added: “We don’t have a head of M&A.”

When asked what Johnson does for Dell, Frink said: “We don’t spending a lot of time talking about what he is focused on”

What is his title? “Head of corporate planning and development,” Frink said.

Does that area include M&A? “Yes.”

Frink initially said Johnson’s job included M&A, but he called back later to say Johnson had no such responsibility. The M&A group reports to Chief Financial Officer Gladden, he added. There still is no head of M&A.

 – Eric Auchard is a Reuters columnist. The opinions expressed are his own –
By Eric Auchard

LONDON, July 10 (Reuters) - The quickest way to attract a marriage proposal is to draw the attentions of a rival suitor.

When Data Domain <DDUP.O> agreed terms with fellow data storage company Network Appliance <NTAP.O> it concentrated minds at EMC <EMC.N>.

The upshot is that EMC is now paying an eye-watering six times sales for Data Domain, one-third more than NetApp first proposed to pay.

EMC could not bear to simply stand and watch. Data Domain has technology that threatens EMC’s business model. Its products reduce demand for existing data storage hardware by as much as 20 times.

The winning bid is nearly double Data’s price before the Network deal emerged six weeks ago. It has emerged that EMC had talked to Data but never made a formal offer. This now looks distinctly careless.

It’s clear that EMC could have won Data Domain for significantly less, and a glance at the technology shows how badly it needed the purchase. EMC may be the market leader in data storage. But its software and operating system is the key to its success, and Data’s products make existing systems much more efficient.

The acquisition of Data Domain is another step in the reinvention of EMC under Chief Executive Joe Tucci, from a seller of storage hardware into a provider of the software and services to run it.

His string of mergers dating from 2003 kicked off the eventual consolidation of the business software industry. He has a reputation for buying cheaply in tough market conditions. Data Domain is not Tucci’s biggest deal, but perhaps it’s not the best executed one, either.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. Read some of Eric’s recent columns here –

 (Editing by Martin Langfield; Photo: Joshua Roberts, Reuters)

Today marks the beginning of the end of what is probably one of the most disastrous media mergers in recent corporate history — AOL and Time Warner. In 2000, AOL shelled out nearly $150 billion for Time Warner, but things didn’t quite work out as planned.

The folks at Time Warner have given ample hints that a separation from AOL was inevitable, especially as part of a strategy shift that will (hopefully) result on the media conglomerate returning to its core business. Hiring former Google executive Tim Armstrong to head AOL had created even more speculation that the split was coming soon.

Now that the spin-off has happened, what lies in store for AOL as an independent company? In January, AOL said it will focus on three areas: content, advertising and social networking. But things haven’t exactly been rosy at AOL, revenue-wise. So for the time being, it gets to hold on to the access line business, which loses value day by day as more people move to broadband, but still generates enough cash to make it an asset worth coveting.

AOL could also decide that Bebo, the social networking site it overpaid acquired for $850 million last year, is not justifying its price tag and decide to sell it off — although the company has been adamant that Bebo is integral to AOL’s transformation. Potentially, the cash it earns from the access business and whatever it gets from a potential Bebo sale could help AOL — both time-wise and money-wise — figure out its next step, especially because the advertising market shows no signs of coming back any time soon.

As for what that next step might be, we don’t have a clue, but figuring out how to make money off web content could be a start, most likely through smart deals. Maybe with some help from the “frenemy?”

Keep an eye on:

• Verizon Wireless will begin selling Palm Pre and Blackberry Storm. So no iPhone? (Reuters)
• Lions Gate Entertainments sells a 49 percent stake in TV Guide. (Reuters)
• MySpace to be MTV of Internet in India. (Business Standard)

Photo: Lightning strikes the AOL/Time Warner building in New York/Reuters

Former state-owned telecoms incumbents with their reliable cash streams from millions of customers have an enviable position in these turbulent economic times. But don’t think that means they can kick back and catch up on their sunbathing, says France Telecom’s finance chief Gervais Pellissier. Nor do they have time to explore unlikely mergers and acquisitions, like last year’s $40 billion hostile and ultimately failed bid for Nordic telco group TeliaSonera. This year at France Telecom, owner of the Orange brand, it’s all hands on deck for management to steer the great ship through the crisis.  “Even on an aircraft carrier, when the sea is very big, I think everybody works,” Pellissier told the Reuters Global Technology Summit in Paris.  ”When the sea is calm in the Mediterranean in the middle of summer, half of the team can tan on the sun deck,” he said. I don’t say this is what we did in 2008… but let’s say we could dedicate some time to such an operation last year that we cannot dedicate this year — it’s impossible.”

Investment bank Jefferies recently released a report on technology M&A in the first quarter of 2009. As one can imagine, there are few surprises. We may as well give you the highlights here, which point to some signs of recovery compared to the end of last year, but clearly there’s still a long way to go:

• The number of tech deals in North America fell 4 percent to 373 in the first quarter from the fourth quarter of 2008. It’s the lowest level of activity in five years, but at least the drop is a manageable 4 percent — in the December quarter, the number of deals dropped 23 percent from the third quarter of 2008.
• The aggregate value of North American M&A transactions was $4.3 billion in the first quarter, also a 4 percent drop from the prior quarter and an 85 percent plunge from the first quarter of 2008.
• Not a single tech IPO priced in the U.S. market during the quarter.
• The biggest tech deal announced in the quarter was Autonomy’s purchase of Interwoven for $764 million.
• The first quarter of 2009 has only three transactions greater than $500 million, compared to 10 such deals in the year-ago quarter.

The Jefferies survey also looks at tech M&A in Western Europe, which presents a similarly gloomy picture. Nine of the top 10 Western European deals in the first quarter were cross-border, and four of them involved U.S. buyers. The aggregate deal value fell 80 percent to $1.8 billion compared to the fourth quarter of 2008.

But it’s interesting to note that the mix of deals in the software, services and media sub-sector hasn’t changed much quarter to quarter. For example, IT services deals have hovered at about 30 percent of total transactions for the past five quarters, while digital media M&A has ranged from 32 percent to 35 percent of total deals in the same period.

Based on the grim experience of the first quarter of this year, Jefferies predicts there will be fewer than 1,500 deals this year in North America, a decline of 22 percent from 2008, which saw 1,919 deals. In terms of aggregate value, the bank expects only $17.2 billion, a 79 percent drop from last year, and nowhere near 2007, when the total deals announced were collectively worth $191 billion.

(Chart: Jefferies)