Dell Poaches IBM's Top M&A Exec

Plans to anoint David Johnson as Dell's top acquisition planner likely signals a shift in strategy. Johnson has overseen IBM's frenetic merger activity for the past nine years.

Paul McDougall

May 27, 2009

4 Min Read
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In a sign it plans to become more active in the mergers and acquisitions market, computer maker Dell has lured away IBM's top corporate buyout expert, InformationWeek has learned exclusively. In response, IBM has filed a lawsuit -- its third in recent months against a senior executive looking to jump ship -- in an effort to block the move.

Dell plans to name David L. Johnson senior VP for strategy. He is currently IBM's VP for corporate development and also is a member of Big Blue's elite Integration & Values team.

Dell has been relatively timid on the acquisition front despite its status as one of the world's largest tech vendors. The company has completed just 10 deals since 1999 -- the largest a $1.4 billion buyout of storage technology specialist EqualLogic.

By contrast, IBM announced or sealed 14 acquisitions in 2008 alone, including the $5 billion takeover of Canadian business software developer Cognos.

Johnson has overseen IBM's frenetic merger activity for the past nine years and is a 27-year veteran of the company.

Dell's plans to anoint Johnson as its top M&A planner likely signal a shift in strategy at Round Rock. The stock market's travails have pummeled valuations for a number once-high-flying IT players, and Dell may be looking to take advantage.

Recent consolidation in the tech market -- including Oracle's deal to acquire Sun Microsystems for $7.4 billion and Hewlett-Packard's $13.9 billion capture of outsourcer EDS in 2008 may also be playing into CEO Michael Dell's thinking. He may be feeling isolated as an increasing number of competitors pair up.

Logical acquisition targets for Dell include IT services firms -- assuming the company wants to diversify--and developers that produce software capable of automating management tasks around Dell's desktop and data center products. A best-of-breed storage vendor -- such as EMC -- might also be a fit for Dell.

For IBM, Johnson's departure is inauspicious. With rivals consolidating, Big Blue itself may be looking to strike a bold deal to maintain a level playing field. Some pundits believe the company could be looking at German business software maker SAP. An acquisition of SAP would help IBM counter Oracle's plans to build, in CEO Larry Ellison's words, an "applications-to-disk" product portfolio that includes apps inherited from PeopleSoft and Sun's Sparc hardware.Indeed, the stakes are such that IBM has wasted no time in suing Johnson in an effort to block his departure. The company admits his loss would be a significant blow. "The actual and potential corporate transactions as to which Mr. Johnson has knowledge span the entire range of IBM businesses and product lines," IBM stated in court paper filed last week in U.S. District Court for Southern New York.

"Among the highly sensitive information Mr. Johnson possesses is, for example, information regarding where and in what companies and technologies IBM will invest, at what times, at what rates of return, as well as information regarding potential divestitures," IBM said.

IBM further states that the corporate information to which Johnson is privy is so sensitive that it's disclosed internally only on a strict "need to know" basis.

IBM contends that Johnson signed a binding noncompete clause in 2005 and thus should be disallowed from joining Dell. Dell competes with IBM mainly in the server market. IBM is asking the court to bar Johnson from moving to Dell and is also suing the executive for legal costs.

An IBM spokesman said the company plans to aggressively pursue the case. "Mr. Johnson repeatedly received significant compensation in exchange for agreeing to non-compete provisions, and IBM expects him to fulfill his obligations. IBM intends to enforce those obligations to the full extent permitted by law," the spokesman said.

The suit marks the third time in recent weeks that IBM has turned to the courts in an effort to block an executive from jumping to a rival.

The company earlier this month filed fraud and breach-of-contract charges against a former executive who cashed in hundreds of thousands of dollars in stock options and other benefits before leaving to join Unisys. Sam Khanna, currently general manager for Unisys' North American IT services unit, violated an agreement to repay benefits if he moved to a competing company within 12 months of exercising those benefits, IBM claimed.

Khanna held a number of high-level posts at IBM from 1996 until May 2008, when he joined Unisys. IBM is suing him for more than $500,000. It's asking the court to order Khanna to repay the benefits and also pay punitive damages and legal costs.

In November, IBM filed similar claims against Mark Papermaster, now head of device hardware engineering at Apple. Microchip expert Papermaster in January settled a noncompete lawsuit filed against him by IBM and in April joined Steve Jobs' company.

Under the settlement, Papermaster must check in with IBM if he suspects that any innovations he develops at Apple infringe on confidential or proprietary information he picked up during his years of work at Big Blue.

Officials at Dell were not immediately available for comment.

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About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

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