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Dell Looks To Ramp Up Acquisitions For Growth - WSJ.com
Dell Looks To Ramp Up Acquisitions For Growth By JUSTIN SCHECK Dell Inc. is cranking up its mergers and acquisitions engine, just as competition for technology deals begins heating up again. While Dell officials have publicly said they want to do more deals, they have given few specifics. But Chief Executive Michael Dell expects his company to acquire a "significant-sized comp......

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Dell Looks To Ramp Up Acquisitions For Growth

By JUSTIN SCHECK

Dell Inc. is cranking up its mergers and acquisitions engine, just as competition for technology deals begins heating up again.

While Dell officials have publicly said they want to do more deals, they have given few specifics. But Chief Executive Michael Dell expects his company to acquire a "significant-sized company" in coming months, according to a person who has spoken with the CEO.

The computer maker wants to expand its data-storage and tech-services businesses, according to people who have recently spoken with its chief financial officer, Brian Gladden.

Dell is doing more than just talking about deals. On Wednesday, the company, which has more than $9 billion in cash reserves, added more financial firepower by selling $1 billion in bonds. It has also hired a high-profile M&A executive from rival International Business Machines Corp.

A Dell spokesman said the debt offering is "for general corporate purposes, and among the possibilities -- and certainly no commitment has been made -- are acquisitions."

Dell rarely sold debt prior to 2008. Since last year, the spokesman said, the company has issued a total of $3 billion in debt.

It isn't clear whether Dell is currently engaged in merger discussions with any companies, though Dell has had continuing talks with bankers for the past two years, say people familiar with the matter. Another spokesman says Dell is looking for acquisitions, but declines to comment on targets.

The Round Rock, Texas, company last month hired IBM M&A chief David Johnson. IBM has sued Mr. Johnson, arguing his old employment agreement prohibits him from jumping to Dell. Mr. Johnson has begun working at Dell but not on mergers or acquisitions, according to court filings.

On June 2, according to a court filing, Mr. Johnson signed a statement saying he would "limit work at Dell Inc. to learning about its businesses, including its strategies, products, operations and personnel" until the court gives him permission to do more.

An IBM spokesman said Mr. Johnson "cannot undertake a senior strategy position at Dell without violating his obligations to IBM."

Dell´s moves come as peers start taking advantage of the recession by snapping up tech companies at reduced prices. Last week, Intel Corp. said it would buy software company Wind River Systems Inc. for about $884 million. And data-storage makers NetApp Inc. and EMC Corp. are battling over storage-software company Data Domain Inc.

The competition, which is starting to drive up prices, couldn´t happen at a worse time for Dell. The company is banking on acquisitions to reverse three years of disappointing growth. Since 2006, the personal computer giant has lost PC market share to rival Hewlett-Packard Co. and suffered from deteriorating earnings. In the quarter ended April 30, Dell posted a 63% drop in profit amid a 23% decline in revenue.

Analysts and investors are calling for Dell to buy other companies to broaden its business. In its current form, "Dell simply doesn´t have the size, doesn´t have the breadth of relationships, and doesn´t have the capability" to compete with IBM, H-P and others, says Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co.

Apart from the rising competition in tech deals, Dell faces other hurdles in M&A. The company has little M&A experience compared with IBM and H-P. Since 2002, Dell has made 10 acquisitions while IBM has made 75 and H-P has done 42, according to Sanford C. Bernstein. Only one of Dell´s deals -- the $1.4 billion acquisition of storage maker EqualLogic in late 2007 -- was big enough to significantly impact revenue.

Recently, say people familiar with the talks, Mr. Gladden has described an M&A strategy based on the reputation Dell developed in its heyday as a low-cost vendor of business products. Mr. Gladden wants to embark on a plan to help customers "reduce costs by using the Dell model," under which Dell could provide software and automated tech services that undercut competitors´ prices, these people say.

The strategy appears to partly stem from the success of the EqualLogic deal. That acquisition has boosted Dell´s sales in storage, where the company wasn´t much of a player before, says Jayson Noland, an analyst at R.W. Baird.

Mr. Noland says he hopes Dell will build on the EqualLogic deal by looking at midsize companies rather than making larger purchases. "Dell doesn´t have a lot of experience" integrating other companies, he says. With a bigger deal, "a lot could go wrong."

Darren Thomas, the general manager of Dell´s storage business, says the company sees storage as an "area for strategic investment." He declines to comment on specific acquisitions, but says Dell wants to "expand its portfolio" in storage-related hardware, software and services.

—Romy Varghese contributed to this article.


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