Dell Buying, IBM Selling Business Units?

IBM’s recent lawsuit against Dell may be a continuation of the recent wrangling the industry has seen over employees who are perceived as making a different to companies, such as IBM’s other recent suit against Apple over chip executive Mark Papermaster. However, it also offers some insights into the strategies of these two major tech players.

The trigger for all the speculation is fight over IBM M&A exec David Johnson, who had been with the company for nine years. That is the obvious sign is that Dell is on the look for acquisitions. After all, why would the company hire an acquisitions expert if it didn’t plan to buy? But that’s not the only sign.

The computer maker has hired David Johnson, a former mergers and acquisitions executive at IBM (IBM), despite a court order that places strict limits on what he can and can’t do at Dell (DELL). In addition, Dell has directed heads of its business units to scout for deals, and even tied part of their compensation to company growth through acquisitions, says a person close to Dell. Any deals would be executed by a central finance team, but tech industry observers say it’s unusual to turn divisional executives into deal hunters.

Apparently, Johnson has been involved in some major deal making at IBM, including the acquisition of the consulting business of PricewaterhouseCoopers.

Another indicator is the recent billion dollars in notes that Dell issued, and whose sale it completed yesterday, even though it reported in May having $10.7 billion in cash and investments at the close of the first quarter. Keep in mind that last year, Dell acquired EqualLogic, which, at $1.4 billion, was its largest to date. So the amount seems in keeping with the size of acquisition that you might expect the company to undertake. In January it snagged the Microsoft-focused consulting part of Allin Corp.. The generally depressed economic atmosphere only serves to depress the amounts M&A targets can command, meaning a great buyers’ market.

At the other end of the legal fisticuffs is IBM. As the Papermaster situation underlined, Big Blue sees Real Red when it loses talented executives. But some of the paperwork to date in the lawsuit suggests more.

Johnson knows “about all of the acquisitions and transactions that IBM is considering,” IBM senior human resources VP Randall MacDonald stated in a declaration filed in the case earlier this month. “He also knows what IBM units are under consideration for divestiture.”

Johnson further “knows the transactions that IBM has considered and decided not to pursue,” MacDonald continued. IBM earlier this year backed off an offer to acquire Sun Microsystems, and Sun ultimately struck a deal to be acquired by Oracle for $7.4 billion.

Although it could be a clever bit of intentional disinformation — technically, if no units are up for sale, then the statement would still be true — this seems more likely to be true. In theory, this wouldn’t be unusual for any large company, which must constantly reevaluate its business strategy. But with a company of IBM’s size and market position, any divestiture signals a potential significant shift in an industry segment. Just last fiscal year, IBM divested itself of “certain processes, resources, assets and third-party contracts related to its core logistics operations” to Geodis. Smart money would suggest looking at IBM’s total holdings — a full-time job in itself, you’d think — and looking for segments that either didn’t work well with the technology consulting that has become the major driver of business there, or business units that had among the lowest revenues in the company.

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