Dell, IBM Clash Over M&A Executive

Eager to step up acquisitions, Dell tells its managers to find deals and locks horns with Big Blue over veteran IBM dealmaker David Johnson

By Aaron Ricadela

Dell is taking some extraordinary steps in its effort to transform itself from a company that has long relied on organic growth into one that makes aggressive acquisitions.

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.

It's imperative that Dell buy companies—possibly in technology services and software—to inject profitable growth into a company whose sales and market share in key areas are sliding, say investors, bankers, and industry analysts. Dell has acquired just 10 companies since 2006, the largest being storage company EqualLogic, purchased for $1.4 billion in 2007. "They need to keep transforming their business model," says Murray Beach, a managing director at investment bank TM Capital. "The value of making boxes has clearly diminished."

By trying to make Johnson its head of mergers and acquisitions, Dell hopes to add a veteran who did deals for nine years at IBM and who possesses a rarefied set of skills at acquiring and wringing value from companies. "There aren't that many of these people," says Elizabeth Lewis, a partner who specializes in employment law at law firm Cooley Godward Kronish.

Dell: Keeping Mum on Johnson's Role

Johnson, 55, would be part of an M&A team that's being assembled by Dell, according to bankers and PC industry sources. He worked on all of IBM's acquisitions and divestitures the past several years, including its $3.5 billion acquisition of PricewaterhouseCoopers' consulting business in 2002, according to a person close to IBM. Johnson possesses "truckloads of information" about companies IBM plans to acquire, this person said. Dell has also retained consultancy McKinsey for advice on acquisitions, according to one investor.

Dell spokesman David Frink confirmed that Johnson is working at Dell, but declined to provide details about his role or other M&A work at the company.

In order to put Johnson in charge of its M&A activities, Dell will need to prove at a June 22 court hearing in White Plains, N.Y., that he can do his job without harming IBM. In a lawsuit filed against Johnson on May 21 in U.S. District Court in the Southern District of New York, IBM says Johnson's employment at Dell would violate a noncompete agreement he signed and would compromise IBM trade secrets—including companies it plans to acquire.

At least until that hearing, Johnson is working at Dell under heavy restrictions. A June 4 court order prohibits Johnson from advising Dell "on any matter concerning business strategy," and requires him to submit to his lawyer a daily log of his activities there, including "the amount of time involved and all persons involved." The court may allow IBM's lawyers to inspect the log. At the June 22 hearing, Judge Kenneth Karas could allow Johnson to continue working at Dell until a decision is reached—or he could issue an injunction barring Johnson from working there until a trial decides the issue.

Business Exchange

Track and share business topics across the Web.