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Dell Goes Private: What's Next?

Dell is going private with the help of $2 billion from Microsoft. Going forward, how much will Microsoft influence operations?

Top 10 Tech Fails Of 2012
Top 10 Tech Fails Of 2012
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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.

In a statement, Dell noted that the price represents a premium of 25% over Dell's closing share price on Jan. 11, the last trading day before buyout murmurs began circulating.

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.

[ What effect will Dell's buyout have on you? Read 4 Ways Microsoft-Dell Deal Could Benefit IT. ]

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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User Rank: Apprentice
2/10/2013 | 7:28:19 AM
re: Dell Goes Private: What's Next?
Many of Dell's competitors (China, Japan, Korea; Lenovo, Samsung, [Apple]) work towards long term goals with ownership that understands that. Wall Street is a craps shoot with faddish financing trends and quarterly whims. Wall Street rewards losers like Dimon; then lowers Dell's prospects because the Server and PC are dead. Seagate went private when "storage will be dead" was the mantra: and storage is not dead and Seagate did better than public companies when stocks rollercoastered. Microsoft? Dell's recent purchases (except maybe Sonicwall) are all addons to MS products. Dell is the most common single brand in SMBs, a partner Microsoft doesn't want to lose. Besides MS has the cash and it will probably make money. Chrome? HP did well with WebOS, didn't it? HP doesn't need MS $$$ but an infusion of intelligence to their board. Lenovo is backed by the Communist Chinese government.
Andrew Hornback
Andrew Hornback,
User Rank: Apprentice
2/6/2013 | 4:26:29 AM
re: Dell Goes Private: What's Next?
One would have to wonder if Microsoft teaming up with Dell is the two of them trying to build an organization to compete with the Oracle/Sun combination.

Given that the "big three" PC manufacturers are Dell, HP and Lenovo, this opportunity couldn't have come at a better time for Microsoft. HP's, by all accounts, an unglorified smoking mess internally and dealing with Lenovo would end up to some degree getting IBM involved (my assumption). By helping Dell go private again, Microsoft gets something in return - and given how much emphasis Dell is putting on their cloud services these days, I'm thinking that they're attempting to give their separate cloud platforms more gravitas.

Andrew Hornback
InformationWeek Contributor
User Rank: Ninja
2/5/2013 | 10:44:37 PM
re: Dell Goes Private: What's Next?
I'm sure MS is getting something for its money, but we'll just have to see what that is.
User Rank: Apprentice
2/5/2013 | 9:34:38 PM
re: Dell Goes Private: What's Next?
I'm not sure I see it as you do SMP. I think that Dell has made some fairly strategic moves, investing in a more diverse set of capabilities with IT in mind, especially at the SMB (small-to-medium business) level. Time will tell if those were smart decisions, but Dell would have been cooked if they had stood still, and arguably they've had some modest success in areas like storage and networking. I don't think the investment community appreciated these moves, and I think having to gauge and manage investor reaction can be a distraction, especially with so many new moving pieces, and complex new areas to conquer. Mind you, I'm not predicting success or failure, just suggesting that customer focus, rather than investor focus, will likely help fuel the success side of that equation.
User Rank: Apprentice
2/5/2013 | 9:10:59 PM
re: Dell Goes Private: What's Next?
Hmmm.... looks like Dell is the next Nokia - and look what happened to Nokia when they took Microsoft's $1 billion per year and started running Nokia for the benefit of Microsoft rather than the benefit of Nokia.
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