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The Wall Street Journal reported today that Dell is ready to pull the trigger on an acquisition soon, with an unnamed source saying Michael Dell has said his company expects to buy a “significant-sized company” in coming months.
The Round Rock, Texas computer maker has certainly done enough to stoke speculation that it’s going to make a deal. Last month, Dell lured IBM’s M&A head David Johnson away from Big Blue. And this week, the PC maker raised $1 billion through a debt offering.
Admittedly, the prospectus for the offering said the proceeds will go for general corporate purposes. And Fitch Ratings said it believes Dell will use some of the cash to fund receivables originated by its finance subsidiary.
Still, an acquisition seems pretty likely. Dell is sitting on $9.7 billion in cash as of May 1 and is coming off a quarter when revenue dropped by nearly a quarter. It’s clearly time for its management to make something happen.
One company being bandied about as a possible target: Palm. The smartphone specialist is a hot name again, thanks to the launch of its Palm Pre last week.
The pre-diction, however, flies in the face of the Journal article, which says Dell management wants to expand the company’s data-storage and tech-services businesses.
But Collins Stewart analyst Ashok Kumar likes the idea of Dell buying Palm. He said in a note to investors on Friday that such a deal would “be born of mutual necessity and represent a strategic fit for both parties.”
Palm could certainly use a hand (hey, it’s Friday), considering it’s been burning through cash. The company lost $640 million during the first nine months of its fiscal year. Kumar put Palm’s price tag around $3 billion.
My colleague John Goff also thinks Palm would be a swell pickup for Dell. Given Dell's huge penetration in the business sector, buying Palm means it could seriously challenge Research In Motion’s BlackBerry in that market. Imagine, your desktop at work is a Dell, your company server is a Dell, your email server is a Dell, your home computer is a Dell. With Pre in tow, Dell could offer the same kind of seamless email integration across platforms that BlackBerry currently offers. That’s a pretty nifty combination.
Dell would also get some big-time executive bench strength by buying Palm, which named Jon Rubinstein as chairman and CEO on Wednesday. Rubinstein, of course, is the executive who developed the iPod for Apple.
Rubinstein knows all about the PC market as well, having turned around Apple's struggling computer operation in the 1990s--including dramatically cutting its operating expenses.
Bringing Rubinstein on board as CEO would allow Michael Dell to slide back into the chairman role at Dell.
In fact, this deal feels like it makes way too much sense. That’s probably why it won’t happen.
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