Dell is going private with the help of $2 billion from Microsoft. Going forward, how much will Microsoft influence operations?
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Dell is officially going private. After weeks of rumors, the company on Tuesday announced it had agreed to a buyout led by CEO Michael Dell, who started the company in 1984 in his UT-Austin dorm room, and private-equity firm Silver Lake Partners. The largest leveraged buyout since the financial crisis began in 2007, the $24.4 billion deal includes Microsoft's expected minority stake of $2 billion.
Under the terms of the agreement, Dell stockholders will be paid $13.65 per share. Dell will entertain competing offers for 45 days, but assuming no unforeseen changes, Michael Dell will remain CEO once the deal becomes official.
Longtime backers are sure to be disappointed, though. At the height of the dotcom boom, Dell was the world's largest computer maker, with a worth that was more than quadruple the buyout valuation. Even within the last year, the company's shares traded at $18.36, 34.5% more than investors will receive under Tuesday's deal. Then again, shares also dropped as low as $8.69 during the last 52 weeks, so some investors might embrace the deal as the best they're going to get.
Dell has struggled on Wall Street despite aggressive moves to transform itself into a diversified software and services company. The company spent billions over the last few years acquiring companies such as Quest Software, AppAssure and SonicWall, and its offerings now emphasize cloud computing, converged infrastructure data centers and management software as much as PCs. In December, Michael Dell declared that his company had completed its transformation.
The broadened portfolio didn't help Dell shake its identity as a PC maker, though. Investors were no doubt aware that Dell's revenue streams still rely heavily on computers, and as the PC market tanked, so too did their enthusiasm for Dell's stock. The year 2012 was a step backward for almost all PC vendors but Dell was hit especially hard, losing market share and sales faster than most of its competitors.
At Dell World, Michael Dell told InformationWeek that his company "is investing for its future" and that short-term losses might be a prerequisite to long-term gains. The buyout can thus been seen as Michael Dell's concession that additional short-term losses could be part of his long-term vision, and that investors focused on quarterly earnings would be an impossible hurdle.
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