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Dell's Perot Bid A $3.9 Billion Gamble

Dell's proposed $3.9 billion buyout of Perot Systems could be a boon to its own sagging fortunes and to enterprises looking to implement new wave architectures like virtualization and cloud computing. But the deal's benefits will only be realized if Dell can manage thorny integration challenges bound to arise as it looks to absorb an organization known for its rigid, by-the-book culture and reliance on a market—healthcare—where the PC manufacturer has little experience.

Adding to the uncertainty is Dell's status as a neophyte when it comes to both IT services and M&As.

Not that there isn't a solid plan in place. Dell wants to marry its hardware and automation software with Perot's integration and outsourcing services so it can offer business customers end-to-end computing solutions, mirroring earlier moves by rivals HP and IBM.

The piece parts are all there, in theory at least.

Dell has the iron and applications needed to form the bedrock of advanced data center setups. The company, for instance, has partnered with VMware to bundle the latter's View offering with its Latitude and Optiplex client machines and PowerEdge servers to create an off-the-shelf virtualization package. It's also tweaked a line of servers to deliver optimum performance on Microsoft's cloud-based Azure operating system.

Perot, meanwhile, brings expertise around integration, deployment, and systems management. Just weeks ago the company launched a cloud integration service under which it advises customers on various hosted offerings, combines cloud-based products from different vendors, vets them for security issues, and—if the customer chooses—hosts and manages it all from one of its massive data centers.

Michael Dell thinks it's a winning hand. "The result will be the combination of two iconic IT brands who share a common vision of reducing IT complexity and total cost of ownership for our customers around the globe," Dell said at a press conference Monday. "This acquisition makes great sense because of the obvious ways our businesses complement each other and enables us to grow profitably over time," Dell said.

It sounds good on paper, but does Dell have the management chops to create a situation where, in the words of outsourcing advisor Steve Martin, "one plus one equals three?

"Perot is very methodical and somewhat stiff and regimented", said Martin, a Deloitte veteran who is now a partner at Pace Harmon consultants. "That's not the culture that Dell has had. These are two very different kinds of companies so the integration issues are not going to be trivial," said Martin.

In its favor, Dell deepened its bench strength earlier this year—luring away IBM's top M&A guru, David Johnson. Johnson's experience could be crucial to Dell's ability to add Perot's operations without alienating customers or employees. Dell's only major buyout to date is its $1.4 billion takeover of storage specialist EqualLogic. At IBM, Johnson oversaw 14 significant acquisitions in 2008 alone.

But even there there's a hitch, as Johnson's participation isn't assured. IBM sued the exec earlier this year for breach of contract after he leapt to Dell and has asked a judge to force Johnson to honor a non-compete clause. The case is ongoing.

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