Troubled Dell goes private

12 years ago

Dell Inc. has signed a $24.4 billion agreement under which Michael Dell, the company’s founder, chairman and chief executive officer, in partnership with the investment firm Silver Lake, will acquire computer maker.

The transaction, which has been touted as the industry’s biggest buyout in recent years, will see Dell shareholders receive $13.65 in cash for each common share. This represents a premium of 25 per cent over Dell’s closing price of $10.88 on January 11. Dell will remain headquartered in Round Rock, Texas.

Apart from Silver Lake and other organization involved in the deal, software maker Microsoft Corp. also contributed $2 billion to the buyout.

Michael Dell

In a statement today, Dell assured shareholders that their investments will be safe in the new company and expressed confidence in its future despite recent setbacks.

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“I believe this transaction will open an exciting new chapter for Dell, our customers and team members,” Dell said. “We can deliver immediate value to stockholders, while we continue the execution of a long term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise.”

Dell, who founded the company in 1984, has made great efforts to bring back the lustre to the company when he returned to head it once more in 2007 after handing over leadership to his hand-picked successor Kevin Rollins in 2005.

However, in recent years Dell has steadily lost market share to rivals such as Lenovo Group. The company has also suffered in its lack of an offering in the white hot tablet and mobile phone market.

The development bodes well for both Microsoft’s and Dell’s PC and data centre businesses, according to David Johnson, senior analyst for Forrester research.

“Microsoft has been aiming for total control of the uiser experience in both hardware and software and a tigther alliance with Dell can help it achieve that,” he said. “On the other hand, Dell can leverage Microsoft’s software and R&D resources to help it compete woth the likes of Samsung and Apple.”

While Microsoft has done ver well with its Server 2012 and HyperV products, the data centre market is rapidly moving towards a more converged infrastructure that enables to deployment of customizable, intergated and fully-automated public cloud and private cloud offerings,Johnson said.

“By working more closely together, Dell and Microsoft will be in a far better position that they are now, to compete with the likes of Oracle and IBM,” he added.

Johnson, also does not see Dell initiating any wide-scale gutting of the company’s departments.

“I don’t think there will be any across-the-board cuts,” he said. “I think Dell will be concentrating on providing higher value from a smaller number of product offerings instead.”

There’s some good reasons for Dell to go private said James Alexander, senior vice-president with the London, Ont.-based Info-Tech Research Group. A key one is the ability to develop and execute a strategy to deal with key trends such as bring your own device (BYOD) and the consumerization of IT in private, without the prying eyes of their competitors looking over their shoulders via the mandatory disclosure required of public companies.

“As they begin to execute this strategy where everyone seems to be trying to find the high ground in terms of the product mix they sell in a commoditized world, it allows them to do things more privately,” said Alexander. “This allows Dell to hunker down and figure out their strategy without having everyone else knowing what the strategy is, and partners of all types coming and second-guessing.”

“Its going to be good for enterprise customers,” added Mark Tauschek, Info-Tech’s lead analyst, “because it allows Dell to foucs on products that are going to make inroads.”

“Dell has made solid progress executing this strategy over the past four years, but we recognize it will take more time, investment and patience, and I believe our efforts will be better supported by our partnering with Silver Lake in our shared vision,” Dell said today.

Silver Lake is a global investor in technology and tech-enabled industries with more than 100 investment specialist in the United States, Europe and Asia who approximately $14 billion in investments.

Following the completion of the deal, Dell will own approximately 14 per cent of the company and will continue to lead the company as chairman, and CEO. He will maintain substantial equity in Dell by contributing his Dell shares to the new company as well as making an additional investment.

The cash and equity contributed by Dell was funded with investments affiliated with Silver Lake, cash from MDS Capital L.P. and a $2 billion loan from Microsoft Corp, rollover of existing debt and debt financing by Bank of America, Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.

The transaction is subject to shareholder approval and is expected to close before the end of the second quarter of Dell’s fiscal year in 2014.

(With notes from Jeff Jedras and Howard Solomon, IT World Canada)