Michael Dell’s proposed $24.4 billion deal to take his company private marks an audacious bid to use his immense fortune to rescue the personal computer maker he founded three decades ago in his college dormitory room.
If approved by shareholders, the deal would be the largest buyout since the financial crisis, and the largest tech buyout ever.
Yet even with Microsoft and Silver Lake Partners at his side, Dell now faces the complicated task of trying to make Dell relevant again in the face of growing competition from mobile computing.
Dell said on Monday that going private would give the company the “time, investment and patience” needed to execute its turnaround.
However, no member of Dell’s consortium offered details of the strategy, or specifics on how being private would benefit the company.
Given Dell’s role in financing the transaction – he will provide roughly $4.5billion in shares and cash, according to people familiar with the deal – financial executives said they doubted the offer heralded another round of big buyouts.
Competitors were also quick to pour cold water on the deal.
“Dell has a very tough road ahead,” Hewlett-Packard said in an unusual statement issued shortly after the deal was announced. “The company faces an extended period of uncertainty and transition that will not be good for its customers.”
The price of $13.65 per share represented a 25 per cent premium to the stock’s share price before news of the deal leaked last month. But it is far below the 52-week high of $18.36, and more than 76 per cent off its all-time high.
Apart from Dell’s commitment to the transaction of about $4.5 billion, Silver Lake will add about $1 billion in equity, people familiar with the matter said. Microsoft is offering $2 billion in subordinated debt. Some existing debt was being rolled over, and four banks were arranging another $15billion in new debt.
Dell acquisitions
Dell has made more than two dozen acquisitions, mainly in software and services, since Michael Dell reassumed the chief executive position in 2007. It is hoping these will help it diversify and reduce its dependence on PCs. In 2012 it bought eight such companies, including the $2.4 billion acquisition of Quest, which provides IT management software.
This may be the major reason for Microsoft’s involvement in the Dell deal, said Dave Johnson, an infrastructure analyst with Forrester Research.
He predicted Dell’s investments and Microsoft’s software expertise could be blended to create more powerful and efficient offerings for storage and networking infrastructures.
“Microsoft and Dell working on that together could be a pretty powerful combination and a potential game-changer,” he said.
He was more pessimistic about the chances of Windows and its PC ecosystem retaining its share of workers’ desktops as IT departments become increasingly comfortable with tablets, in particular the iPad.
Forrester estimated IT departments spend $1,763 supporting each new PC, in addition to the initial purchase costs.
– (Copyright The Financial Times Limited 2013)
