Analyst: Dell's moves toward EMC deal are like 'python eating the buffalo' 

Posted March 28th, 2016

Analysts say Dell Inc.'s sale of its IT services division clearly moves it a step closer to completing its planned purchase of EMC Corp.

Dell Inc. agreed Monday to sell the Dell Services unit -- formerly known as Perot Systems -- to Japan-based NTT Data for $3.1 billion

Dell bought Perot Systems, founded by the entrepreneur and one-time presidential candidate Ross Perot, for $3.9 billion in 2009 as it attempted to expand beyond its stalled core business of personal computers.

LAURA SKELDING/AMERICAN-STATESMANMichael Dell gives the keynote address at the Dell World conference in the Austin Convention Center on Wednesday, October 21, 2015.

But now Dell is paring down and raising cash as it prepares to complete the EMC deal.

Here's what analysts said about Monday's sale:

"It's not that Perot Systems is not valuable," said longtime Dell observer Roger Kay, president of Massachusetts-based Endpoint Technologies Associates Inc. "It's $3 billion worth of value that Dell was successfully able to convey and liquidate. Now it has $3 billion it can take back into the debt market and help solidify the EMC deal."

Dell, which didn't put out a news release announcing the deal, would prefer that the sale be seen as a non-event, Kay said.

"The way they're trying to portray it is it's all in a day's work. Nothing to see here. It's simply raising money for the EMC deal, which is far more central to Dell's future."

If Dell were publicly traded, doing this kind of deal might hurt its stock. But being private gives the company the time it needs to take over EMC and reemerge as a much larger player.

"Since they're not public, the holders can just take the long view and say eventually this will work its way through the system. Think about the python eating the buffalo. It seems ungainly at first, but eventually the python will digest the buffalo and be bigger for getting it."

Patrick Moorhead  of Moor Insights and Strategy said he doesn't think the Perot sale is simply to get cash.

"I believe they've been shopping this for over 18 months," Moorhead said. "I don't think they said 'Oh my gosh, we need $3 billion just to get over the finish line with EMC.'  I think Dell sees something strategically that maybe other companies don't."

That's why Moorhead is counting down to the completion of the Dell-EMC deal. "I'm looking forward to the two companies can actually lay out what they're going to do. They've had their top executives in the boiler room for months, but until the deal closes, they can't talk about it."


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