Acquisitions

We're moving right along with the acquisition of Perot Systems!  Today, we commenced our tender offer to acquire the company. 

What is a tender offer you ask? 

The tender is a formal process of making a public offer directly to Perot's shareholders to buy their shares at the previously stated price of $30 per share.  The offer was filed with the Securities and Exchange Commission. To learn more, I encourage you to read the tender offer, the press release we issued, and take a look at the ad that appears in today's Wall Street Journal.

We've taken some other steps getting us closer to closing the deal.  Since the merger announcement on September 21, we have submitted competition law filings in the United States and some other countries.  As a result, we are now in a waiting period that the government may choose to shorten or extend pending any antitrust concerns.  These filings and waiting periods are pretty typical for any transaction of this type.

We have also begun integration planning with Perot Systems.  Teams are being put in place to oversee this integration planning, which includes organizational resource alignment, financial reporting implications, systems integration plans, and other typical things associated with an integration process.  While we are engaged in the planning process, we are also mindful that that we cannot combine the two companies until we close the transaction. 

So what happens next with the tender offer?

Unless extended, the tender offer begins today and ends at midnight on November 2.  Perot shareholders have this period to tender their shares for the offer price of $30 per share.  Upon acceptance for payment of shares in the tender offer, Perot Systems becomes a subsidiary of Dell.

Today's news represents the next step in the acquisition process, and when completed, this bigger and better Dell is expected to help customers grow and thrive with a broader range of IT services and solutions.

We look forward to sharing with you more details through this exciting process.  Once we close on the acquisition, you'll be hearing more detailed thoughts about our services strategy, organization, key initiatives and financial information.  At that time, Dell leaders will provide more detail around our growth, synergy and integration plans.

Until then, your questions and comments are welcome.

SPECIAL NOTE:  This blog post is for informational purposes only, and is not an offer to purchase or a solicitation of an offer to sell securities.  The tender offer is being made only pursuant to the Offer to Purchase, Letter of Transmittal and related materials that Dell and DII- Holdings Inc. have filed with the SEC on a Tender Offer Statement on Schedule TO on October 2, 2009.  In addition, Perot Systems has filed a Solicitation Recommendation Statement on Schedule 14D-9 with respect to the tender offer on October 2, 2009.  The Tender Offer Statement (and related materials) and the Solicitation/Recommendation Statement contain important information that should be read carefully before any decision is made with respect to the tender offer.  Those materials may be obtained free of charge from D.F. King & Co., Inc., the information agent for the tender offer, toll-free at (800) 488-8095 (banks and brokers call collect (212) 269-5550).  In addition, all of those materials (and all other offer documents filed with the SEC) are available at no charge on the SEC's website at www.sec.gov.

Today, Dell and Perot Systems entered a definitive agreement for Dell to acquire Perot Systems in a transaction valued at $3.9 billion.  Terms of the pairing were approved by boards of both companies.

We anticipate the combination will close by end of Dell's fiscal 4th quarter, pending regulatory approval, and will be funded with existing cash.  Perot Systems' current CEO, Peter Altabef will lead the combined services units of joint Perot Systems' and Dell's services units.  The new business unit will be called Perot Systems, a Dell Company and will be run out of Perot's current Plano, Texas campus.

This acquisition is about our strategy to provide next-generation IT service delivery and grow our enterprise revenue base.  This is a key acquisition in our strategy to transform the company and IT services will be a significant part of our strategy and we have been focused on finding the right asset in this space, which Perot Systems provides.  Perot Systems' expertise in infrastructure & operations, business processes, application development services strongly complements Dell's existing services offerings and global reach.  Not only do they have a robust services portfolio, but they have tremendous segment expertise, including growth areas such as healthcare and government. 

This combination allows Dell to gain a scalable asset that we can leverage our direct customer footprint to build out rapidly.  We think we can add on other assets (including ours), and globalize Perot Systems into a strong global service company.  Perot Systems' world-class services innovation brings several key service offerings we don't enjoy today.  Another critical element to understand regarding this announcement is that Dell and Perot Systems are very familiar with each other from a capability and cultural standpoint.  We have enjoyed a longstanding relationship over the past several years and with our announcement today take this relationship to the next level, which will allow us to deliver the best possible value for our customers. The pairing results in a compelling combination of companies that have similarly strong, relationship-based business cultures, and that are known for focus on helping customers thrive by using IT for greater effectiveness and productivity.

There will be more details about this acquisition once we close and satisfy the customary regulatory requirements involved.  In the end, our strategic mission remains the same -- to provide disruptively great value to our customers... while balancing our financial goals of liquidity, profitability, growth.   Thanks and we welcome your questions as always.

Rob

Additional Information

The planned tender offer described in this blog posting has not yet commenced.  The description contained in this blog posting is not an offer to buy or the solicitation of an offer to sell securities.  At the time the planned tender offer is commenced, Dell will file a tender offer statement on Schedule TO with the Securities and Exchange Commission (the "SEC"), and Perot Systems will file a solicitation/recommendation statement on Schedule 14D-9 with respect to the planned tender offer.  The tender offer statement (including an offer to purchase, a related letter of transmittal and other tender offer documents) and the solicitation/recommendation statement will contain important information that should be read carefully before making any decision to tender securities in the planned tender offer.  Those materials will be made available to Perot Systems's stockholders at no expense to them.  In addition, all of those materials (and all other tender offer documents filed with the SEC) will be made available at no charge on the SEC's website: www.sec.gov.

Dell Equity Analyst Meeting

Today more than 200 participants, including analysts and investors, joined us in Austin for Dell's Analyst meeting.  There were also a record breaking number of webcast attendees for this meeting, where we broke our record of 400, rising to nearly 500 participants. This meeting was an opportunity to hear directly from Dell's senior leadership on our near-term operating agenda and long-term strategy and address questions or concerns.  The presentations from this meeting are available for viewing online,

This year, the meeting and briefings took place the same day.  Dell executives discussed the company's strategy and operating agenda along with a financial overview and update on its four customer segments. 

We are competing in a rapidly changing environment.  As a result, we are improving our core business performance while expanding and extending across a broader set of customer solutions.   Key messages delivered today were Dell's differentiated view of how to win in enterprise, our strategic mission "to provide disruptively great value to our customers", and that both these items will be realized through a combination of internal investments, partnerships and inorganic growth.

The meeting was opened by Michael Dell, Chairman of the Board and CEO, where he discussed Dell's key assets, view on the enterprise, and long-term priorities.  Michael noted that Dell has a strong presence and currently holds #1 or #2 share position in most key segments.  He also covered strategic priorities to deliver operating income and cash flow growth as well as the requirements needed to win longer-term.

Brian Gladden, CFO, followed and built on striking the optimal balance between liquidity, profitability and growth.  Brian reviewed Dell's operating agenda, gave an update on the solid progress on $4B cost reductions, and provided a long-term value creation framework that articulated Dell's vision for revenue growth, profitability and cash flow generation.  He also stated that Dell is well positioned to benefit from an economic recovery and will continue to provide strong liquidity.

Steve Schuckenbrock, President of Large Enterprise, walked us through our higher-value & higher-margin enterprise vision which addresses innovation and virtualization in next-generation data centers vs. our competitors' full-stack approach.  He also reviewed how Dell is delivering steady growth in its core business while powering enterprise efficiency through innovation without legacy.  For example, we approach services very differently from our competitors.  We believe services should be customizable, a la carte, and available remotely.  We let customers choose which services they want and when they want them.  And we provide solutions where consultants are available - but not required. 

Paul Bell, President of Public Sector business, addressed how Dell is aligning its global organization for balanced geographic expansion via vertical solutions designed for three unique customer bases -Education, Government, and Healthcare.  Paul mentioned the challenges in this segment due to the macro environment, but also highlighted opportunities that exist internationally as well as those related to stimulus funds. Requirements needed to win in the Public sector include deep expertise in the sector-specific challenges, solutions investments, technology leadership, and solid partnerships.

Steve Felice, President of Small & Medium Business, presented Dell's plans to lead in the SMB space through innovative solutions and its go-to-market strategy.   Steve reviewed the varied needs across the customer base of Small Businesses and Medium Businesses as well as regional opportunities to grow the business. He highlighted the solutions and product offerings that will help drive growth in each of these areas along with the benefits offered through SMB's go-to-market strategy.  Having a multi-channel strategy will enable Dell to expand presence in under-represented geographies and drive incremental growth in enterprises and solutions.

Ron Garriques, President of Dell's Consumer Group, walked through consumer's brand architecture, its multi-channel customer portfolio and how it's bringing a disruptive approach to PCs.   Dell grew to 33,000 retail stores globally in two years.  Clearly, there is a lot of opportunity to continue to grow in this retail space.  Ron reviewed Consumer's plan to grow faster than the industry through aggressively managing costs to reflect the multi-channel infrastructure, expanding global presence, and offering competitive products.  He also reviewed plans to reinvigorate Dell.com to create a destination for all customers.

If you haven't already seen the presentations, I encourage you to watch a replay of them here. 

As always, we welcome any questions or comments.

-Rob

Brian participated in a fireside chat at the Morgan Stanley Annual Technology Conference yesterday.  You can sign up and be notified in advance via email of these events.  He started off by providing a brief overview of our latest quarterly and fiscal year results and then did some Q&A. In his message to investors, Brian emphasized profitability and liquidity as the two foremost priorities for us in this current economic environment and expressed confidence in our ability to extract further cost improvements in the business and emerge in a stronger competitive position.  As a short recap, I've included a few questions and answers Brian took during the meeting. I encourage you listen to the full webcast by clicking here.  As always, please provide your comments on Dell Shares.

1.       How would you characterize the current demand environment?

• The demand environment continues to be pretty tough year to date and we are seeing a lot of customers deferring purchase decisions due to the economy.
• We expect broad-based challenging environment to continue as budgets are likely to remain pressured at least through the first half of 2009.
• Our demand in Q4 was more linear than Q3 but the trends late in Q4 and in early Q1 are still negative.
• Do not know what magnitude of slowdown will be - but we will be nimble enough to rapidly adjust to the realities of the demand environment.

2.       How are you going to maintain gross margins in this environment?

• We have made significant progress in taking cost out of the box but there's more work to be done.
• We continue to make progress on the price and sell-to-value side of the equation as we introduce new products and will place an emphasis on smart pricing of these products.
• Progress here has provided a buffer to declining volumes late in the year and enabled us to remain competitive and deliver stable gross margins.
• We are confident in our ability to extract cost improvements even in a slowing demand environment and emerge in a stronger competitive position.

3.       Why haven't you made more acquisitions?

• Historically, our focus has been on organic growth... that model has worked for us successfully in the past.
• Having said that, we have made 9 acquisitions in the last year and a half and will continue to look for more opportunities that make strategic sense.
• We continue to look for opportunities in enterprise products, software and services, but it take two willing parties to make an acquisition work.
• In this environment, there's not much M&A activity going on because companies are not willing to sell at these low valuations.

4.       Can you comment a little bit on how you are managing working capital at Dell?

• Liquidity is #1 priority for us in this environment.
• During this period of declining revenue growth, we are aggressively managing our cash conversion cycle.
• For inventory, we have reduced our strategic buys, which also helps us benefit from cost deflation.
• Our payables have been impacted by the demand environment but we do not expect any significant structural changes.
• Given the current demand environment we would like to maintain our cash conversion cycle, and we continue to believe there are opportunities to improve our cash conversion cycle over time.

5.       Where should we expect to see Dell 2 years from now?

• We will take advantage of this downturn to reshape our revenue portfolio and better position us competitively.
• Over time, our goal is to move the weight of our portfolio to higher margin offerings and recurring revenue streams.
• We will accomplish this by migrating to a solutions-driven business with an increased mix of enterprise products, services and bundled solutions.
• We will also make strategic acquisitions as necessary that fit our model.

Thanks for joining us on Dell Shares.  I recently sat down with Steve Schuckenbrock, President of Dell Global Services and CIO, to get some more insight into our services business. Our discussion focused around what we're doing with cloud services and remote infrastructure management. We also touched based on our recent acquisitions, how our services business is growing, and how the current economic environment will impact our business.

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Steve walks us through the services supply chain, and how, at Dell, our services business is differentiated from our competitors. Why we believe that customers will embrace proactive, low cost services solutions. Why developing "services aware" hardware allows us to deliver customized-solutions that reduce tedious, people intensive tasks that can be automated. And finally, how Dell's simple and configurable services deliver a pay-as-you-go business model that is both scalable and flexible to our customer's needs.

We hope you find this discussion helpful. As always, we will respond to your questions and comments posted on this blog site as well as via email and over the phone. So please feel free to post on this site or contact us directly. We look forward to hearing from you!