Should Cognizant Buy Perot Systems?

One analyst thinks so. Here’s the story: Dell bought Perot Systems from Ross Perot for $4 billion. Now Dell is buying EMC so they want to free up some cash by selling off Perot.

David Koning at Robert W. Baird think Cognizant would be an ideal buyer:

Koning estimates Perot revenue at $3.1 billion annually, which is roughly 22.5% of Cognizant’s annual revenue. He estimates Perot’s EBITDA — earnings before interest, taxes, depreciation and amortization — at about $470 million, or roughly 15% of Cognizant’s EBITDA. He expects the combination would create about $50 million worth “of synergies.” Cognizant’s $3 billion of net cash in the bank could swing to $2 billion in debt, depending on how Cognizant financed the acquisition, he says.

Bottom line? Maybe 20 to 25 cents per share of improvement to Cognizant’s annual earnings, Koning says. “Investors sometimes don’t like the strategic fit but end up giving credit for accretion,” he wrote.

Interesting, but I’m not sure if this would be a good idea long-term. Sometimes I wonder if sitting on too much cash is a good thing. I’m reminded of what Peter Lynch called the “Bladder Theory of Corporate Finance.”

Posted by on December 29th, 2015 at 2:17 pm

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