Computermaker Dell and healthcare information technology outsourcing company Perot Systems Corp., which announced a joint marketing alliance in April, are taking the relationship a giant step further with Dell's $3.9 billion offer to acquire Perot.
Dell's HIT power play
Experts ponder ramifications of proposed Perot deal
The proposed Perot purchase indicates Dell, the nation's largest computer seller, is serious about being a healthcare IT player, particularly in IT outsourcing, where Perot dominates, said Mike Smith, general manager of financial and services research at Orem, Utah-based KLAS, a research firm. “To me, this represents they're getting further invested in healthcare,” Smith said. “If you look at the outsourcing business in healthcare, Perot seems to own that market” with roughly half of the hospitals that outsource their IT being Perot clients, Smith said. “You have other players such as CSC, but no one can touch what Perot has,” Smith said, referring to Computer Services Corp.
Dell, Round Rock, Texas, made the announcement Sept. 21, but reached the agreement with Perot, Plano, Texas, the day before, according to its filing with the Securities and Exchange Commission. The deal is expected to be closed by the end of January 2010. Under terms of the deal, Dell would pay a 68% premium to buy Perot common stock at $30 a share. Perot shares closed at $17.91 on Sept. 18, before the deal and at $29.69 on Sept. 25.
The Securities and Exchange Commission later filed a complaint against a Perot Systems investor alleging insider trading regarding the deal.
Dell shares fell from the $16.69 closing price on Sept. 18, the last market day before the Perot acquisition was announced, and ended trading at $15.34 on Sept. 25.
In May 2008, Hewlett-Packard Co., Palo Alto, Calif., announced it would pay $13.9 billion for outsource IT service provider EDS, also from Plano, and also a big player in healthcare IT. Both Perot and EDS were founded by Texas entrepreneur and former presidential candidate H. Ross Perot.
Perot Systems reported revenue of nearly $2.8 billion in 2008 and a net income of $117 million. Perot derived 47% of its revenue from its healthcare operations. And while it operates in 25 countries, its “nondomestic” revenue of $356 million for 2008 represented just 13% of its total revenue last year.
For its fiscal year ended Jan. 30, Dell reported $61.1 billion in revenue and a net income of just under $2.5 billion, according to its SEC filing. Dell claims about 15% of the global market for computer sales.
One of the many unknowns about the deal at this point is its impact on the development of a market for open-source health IT that relies on the VistA clinical IT system developed by the Veterans Affairs Department. “Dell is going to be inheriting one of the top three corporate pools of VistA knowledge in the country, DSS and Medsphere being the other two,” said Fred Trotter, of Houston, founder of Liberty Medical Software Foundation. “The question is: Do they recognize what they've got, and do they plan to pursue an open-source strategy?”
Perot has a contract on a pilot project by the country of Jordan to install the open-source WorldVistA EHR system in two hospitals and a clinic in Amman. Perot announced Sept. 18 another open-source VistA contract, a 10-year IT outsourcing agreement that also calls for installation of WorldVistA system at Max Healthcare, a private, eight-hospital group based in Delhi, India. The deal is valued at more than $18 million, according to Perot.
Chuck Lyles, president of Perot Systems healthcare group, said that Perot runs more than 3,000 healthcare applications for its clients. Both Perot and Dell have benefited from not aligning themselves exclusively with specific application vendors, an approach that won't change after the acquisition, Lyles said. Providing VistA as an alternative to proprietary software is part of “a delicate environment” in which Perot operates, he said, but “we've had a strong debate about that and what our clients say what they like about Perot Systems is you don't” have a favored product.
“We allow our clients to pick what is the best platform for their environment,” Lyles said.
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