Dell sells IT division for $3 billion as it prepares for EMC deal

Posted March 28th, 2016

Looking to shed debt ahead of its $67 billion acquisition of EMC Corp., Dell Inc has agreed to sell its IT services division to Japan-based NTT Data Corp. for just over $3 billion.

Dell's IT services division, known as Dell Services, was formerly known as Perot Systems, a company founded by former U.S. presidential candidate Ross Perot. Dell bought it in 2009 for $3.9 billion at a time when it was struggling to expand beyond its stalled core business of personal computers.

The sale would enable Round Rock-based Dell Inc., which is the largest private employer in Central Texas, to raise cash to help make its EMC deal work, analysts said.

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


NTT Data said the acquisition, which was announced Monday,  would significantly increase its presence in North America and strengthen and expand its global delivery network.  

“There are few acquisition targets in our market that provide this type of unique opportunity to increase our competitiveness and the depth of our market offerings,” NTT Data CEO John McCain said in a written statement.  

Dell Services provides information technology services to hospitals and governments. The division has 28,000 employees worldwide, said company spokesman David Frink. Most of the division's personnel in Texas are located in Plano, he said. 

Dell's planned $67 billion deal for data storage giant EMC, which is based in Hopkinton, Mass., a suburb of Boston, was announced in October. It would be the biggest IT sector buyout ever if completed.  

The EMC deal is so big that some analysts have questioned whether Dell Inc. has the funds to really pull it off, and EMC's stock price has dropped since the deal was announced.  

Dell Inc. and EMC executives have reassured investors, customers and employees that the deal is definitely happening. Last month, Dell received U.S. regulatory clearance to proceed with the acquisition. 

The company, which was started by Michael Dell from his University of Texas dorm room in 1984, has about 13,000 employees in Central Texas and 100,000 employees worldwide.

Analysts said Dell's sale of its IT services division moves it a step closer to completing the EMC take over.

 "It's not that the IT division 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 finance the EMC deal." 

Kay said Dell Inc, which didn't put out a news release or otherwise publicize the deal with NTT Data, would prefer that the sale be seen as a non-event.

 "The way they're trying to portray it is it's all in a day's work. Nothing to see here," he said. "It's simply raising money for the EMC deal, which is far more central to Dell's future. It makes a lot of sense. Dell's not doing a lot of things that don't make sense these days."

 If Dell were publicly traded, selling off a business division to help fund a bigger merger would likely hurt its stock . But being private gives the company the time it needs to take over EMC and re-emerge as a much larger player, Kay said.

"Since they're not public, the holders can just take the long view and say eventually this will work its way through the system," he said. "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 Dell Services sale is simply to generate 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 when 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."