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Dell Goes Private For $24.4 Billion, Microsoft 'Loans' $2 Billion

Deal of the year and sign of the times, Dell has announced that it is to go private in a US$ 24.4 billion deal that sees the company partially back in the hands of founder and Chief Executive Michael Dell, and partially in the hands of technology investment firm Silver Lake.

The Dell Deal

Microsoft has also taken a piece of the action — US$ 2 billion worth of action to be exact — in a move that it described as an investment in the future of the PC industry. However, what Microsoft's relationship here is still a bit unclear as the money is described as a "loan."

In a statement released after the deal was announced, Michael Dell said he thought the deal would revive the sagging fortunes of Dell:

I believe this transaction will open an exciting new chapter for Dell, our customers and team members… We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise. Dell has made solid progress executing this strategy over the past four years, but we recognize that it will still take more time, investment and patience.”  

There are some real issues here, and one really obvious one. Dell, according to Michael Dell, has been trying to build up to what was once an unassailable position in the PC market.

Some small progress has been made, but in the current climate and with the PC space in a whole pile of trouble as consumers and businesses move to mobile computing, if it hasn’t pulled itself up already, it seems unlikely that it is going to manage it now.

Despite Microsoft’s new-found altruism towards the PC market, it seems unlikely that it is spending US$ 2 billion to bolster it. Much more likely is that it is angling for a wide space to place its applications, not least of which is Office, as fewer people buy PCs.

Those currently holding Dell stock must be finding some cheer in the announcement as they now stand to gain 25% on the price of its stock on January 11, its last day of trading, when it closed at US$ 10.88 per share.

Vulnerable Dell

From a financial point of view, this story could only just be starting. It is impossible to say what will happen with it, but Dell is not going to be able to reinvent itself fast enough to prevent further assaults.

With this deal, which is being touted as the biggest leveraged buyout since the beginning of the Great Recession,  and the fact that it is now a private company will make it more vulnerable to other predatory companies that might be interested in a slice of Dell.

IBM springs to mind immediately, and while HP can probably be ruled out, there has been a bounce in Meg Whitman's step in recent months. She may have the confidence and backing to go after a slice of Dell, too. There are other companies jostling for room in this space including Apple, Google, Acer, Samsung, all of whom have deep pockets.

The Dell Factor

But that is probably to underestimate what Dell has been doing in recent and the business acumen of Michael Dell himself, who started the company in a college dorm in 1984 with an investment of US$ 1000.

To suggest too, that Dell has been standing by as the great mobile world spins and not react is also to underestimate a company that still has considerable financial punch.

He has been looking at the enterprise and what enterprises think they need. Following that assessment it opted to buy Quest, which has real clout in the virtualization market, and Perot in 2009, which provides IT services for enterprise customers.

And there is brighter economic weather on the way. Away from the stock exchange, Dell, who remains CEO, will be able to put together recovery plans that will take more than a quarter, or even a year to implement without rising the ire of shareholders, who are never really be able to see further than the next financial statement.

Its still too early top say whether this will be good or bad for Dell. One thing for certain, though, is that there’s a lot more play in Dell yet.

 
 
 
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