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TCS Back in Race to Acquire Perot Systems: Report

India's biggest outsourcer TCS has restarted talks with Dell to acquire Perot Systems, an IT management business of Dell Inc, the Economic Times newspaper reported, citing sources.
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TCS Back in Race to Acquire Perot Systems: Report
India's biggest outsourcer TCS has restarted talks with Dell to acquire Perot Systems, an IT management business of Dell Inc, the Economic Times newspaper reported, citing sources.

TCS had earlier ended initial talks with Dell after a disagreement over price, said the report.

Perot Systems is major provider of IT consulting to hospitals and government departments in the US. Founded in 1988 by former US presidential candidate Ross Perot, it was acquired by Dell in 2009 for $3.9 billion.

Reuters, also citing sources, earlier reported that Cognizant Technology Solutions, NTT Data Corp of Japan and Atos SE of France are competing to acquire Perot Systems.

The talks to acquire Perot Systems comes at a time when the nearly $146 billion Indian IT industry faces a slowdown in traditional IT services areas such as application maintenance, infrastructure management etc, which are major revenue generator for domestic firms.

Dell is hoping Perot Systems will fetch more than $5 billion, helping it trim its debt load following its agreement to acquire data storage company EMC Corp for $66 billion, the Reuters report said.

Brokerage Maybank in a note said that if TCS is able the clinch the Perot Systems deal, it will be "long-term positive" for the Indian outsourcer.

It will enhance the size and reach of TCS in the US and help it to bid for bigger deals, the brokerage said.

However, in the near to medium term, this could lower the overall margin of TCS which is in the mid-20s while that of Perot IT is likely to be much lower, Maybank added.

The brokerage also said that TCS is in a strong financial position to make this acquisition and catapult its revenue. "TCS generated FCF (free cash flow) of $3 billion for FY15 and its cash & cash equivalents stand at $3 billion," Maybank said in a note.

Perot Systems is estimated to have annual revenue of $3.1 billion, the Economic Times report said, citing an analyst. On the other hand, TCS had reported annual revenues of $15.5 billion during the fiscal year 2014-15.

Maybank maintains a "buy" rating on TCS, with a target price of Rs 2,980.

Shares in TCS, on Monday, ended 1.69 per cent lower at Rs 2375.50 apiece on the BSE, whose benchmark Sensex index finished down 2.05 per cent.

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