After battling with other bidders over the past few months,
) has finally snapped up information technology (IT) management
Quest Software Inc.
). Dell edged out its competitors with a striking offer of $2.4
billion (net of Quest's cash and debt).
The purchase consideration translates to $28.00 a share, which
is a slight premium over Quest's closing share price of $27.82 on
Monday. The deal has already been approved by the boards of
directors of both companies and is expected to close in Dell's
fiscal third quarter ending October 2012.
A Good Deal for Dell
California-based Quest Software develops network and database
management software and offers a wide range of solutions to deal
with IT challenges. Quest's offerings will go hand-in-hand with
Dell's offerings and would expand the latter's software
capabilities in systems management, security, data protection and
Moreover, Quest also brings on board 1,500 software sales
experts and 1,300 software developers, which are expected to
generate $1.2 billion of software revenue, annually.
Also, Dell could make its presence in the software space more
stable, putting pressure on H-P, which is on a similar mission.
The Bidding Drama
Many software vendors were chasing Quest Software since the
beginning of this year. Among the bidders, Quest found the offer
made by private equity firm Insight Venture Partners competitive.
Insight, which partnered with Vector Capital, offered a price of
$23 per share or $2.0 billion in March. In June, Dell and Insight
entered into a neck and neck bidding war. Dell's $2.15 billion
offer was outshined by Insight's hefty $2.17 billion.
The Quest bid reminds us of the dramatic 3PAR bidding war
between the PC bigwigs Dell and
) in 2010. Dell lost the bid to its archrival.
The acquisition reflects the fourth consecutive deal by Dell
this year and also furthers the company's objective of moving to
the higher-margin markets, such as software, storage and services.
The initiative would help the company to shift its focus from the
traditional PC business, which is putting pressure on its
The shift is critical for Dell's success in the dynamic and
evolving technology sector, where most of the growth in the next
few years is likely to be in the storage, software and
virtualization segments. Since Dell's business has been focused on
PCs, the company has had to refocus the business and even go in for
some cost reduction over the next three years.
The basic idea of this cost reduction initiative was to support
current profitability, with the longer-term objective being a move
from the traditional computing business to a high-margin
enterprise-class software and services business. The costs saved
will also help fund further acquisitions targeting the
Dell's shares slumped 5 cents in the after-hours reflecting
integration risks, a higher debt burden and concerns regarding the
uncertain PC market.
Currently, Dell has a short-term Sell recommendation, as
indicated by the Zacks #4 Rank.
DELL INC (DELL): Free Stock Analysis Report
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QUEST SOFTWARE (QSFT): Free Stock Analysis
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