MediaFile

from Breakingviews:

Tech services deals count on more with less

Xerox button

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.

from DealZone:

Pricey Palm attracts attention

If you want to take a bite out of Apple’s piece of the staggeringly huge (but difficult to quantify in $$$ terms) smartphone market pie, you’d better either have the magical new “thing” or be willing to spend to buy it.

As Anupreeta Das reports, Palm – one of the stalwart originals in the mobile handset space -- has remade itself into a terrific target with the success of its Pre. Palm’s stock got a jolt this week on talk that Nokia could be considering a bid. But as she explains, Palm may prove to be too pricey a purchase, even for those with deep pockets.

Since introducing the Pre, Dell, Microsoft, Nokia and Motorola have been mentioned as possible suitors. If one of these cash-rich companies was to bid for Palm today, it would be targeting a stock that has quadrupled this year. Complicating matters, “details on how many units it has sold are skimpy, making it difficult to value the success of Palm's turnaround story,” she reports.

from Commentaries:

The guessing game ahead of Dell-Perot deal

Dell Perot puzzle pieceIn retrospect, it's easy to say we could have guessed it:

Why didn't some investors put 2+2 together and figure out that Perot Systems might be a target for Dell -- before that is, Dell announced its $3.9 billion cash deal to buy Perot.

Looking back at Perot's share performance, the stock has been building up momentum since July, despite warning of weak earnings in its August 4 quarterly report. The stock, which traded under $15 throughout the first half of the year, had built to $18 by last week. Perhaps this was early optimism about 2010 prospects. But the other explanation is some timely speculation that Perot was a logical target for fellow Texan company Dell.

Dell had made little secret of its plans to acquire computer services and software companies for months. Executives had dribbled out hints about what kind of targets it was after in the weeks and months leading up to the September 21 news.

from Commentaries:

Dell shows discipline in opting for Perot

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

Eric AuchardLONDON, 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.

from DealZone:

Is Dell overpaying for Perot?

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.