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41

What does it mean that Dell is going private with Microsoft’s help?

Yesterday the rumors about Michael Dell taking his company private were put to rest. It’s happening, and the deal is worth $24.4 billion. 

I’ve seen a few comments written about how Michael Dell is robbing shareholders. I don’t think that’s true at all. The stock was trading around $11 prior to rumors of a management buyout. The deal gives shareholders $13.65 per share, which is a decent premium. Obviously some shareholders may think they’re getting ripped off because the stock was already close to the buyout price before the deal was officially announced. But if the deal evaporated, the stock would surely nosedive. This logic escapes some people. Nothing you can do about that.

The buyers in this deal are Michael Dell, Silver Lake Partners, and Microsoft. Michael Dell and Silver Lake make perfect sense since Dell will remain CEO and Silver Lake is a well known firm with a history in participating in large deals like this. Silver Lake was the firm that took Avaya (formerly Lucent Technologies communications division) private.

Dell and Silver Lake are the equity guys. They’ll be the guys who own stock in the newly private Dell. Microsoft, however won’t have any equity. They’re going to be debt holders because of a $2 billion loan. This means Microsoft won’t have any voting power in the direction Dell takes. Naturally, Microsoft still has  a lot of power here because they’re a massive supplier to Dell.  But if the Texas PC maker wants to make bolder decisions that take it out of the commodity business, there won’t be any stopping them.

It’s entirely possible that Microsoft’s loan comes with some conditions that preclude Dell from taking certain actions in the interim. Or, perhaps, they even obligate Dell to take other actions (possibly tied to Bing, Windows Phone 8, tablets, or other areas where Microsoft wants to collaborate with Dell). But these are all just possibilities, not something I know enough about to speculate on.  

One thing seems clear - Dell has not seen success in the mobile market and it is doubtful they’ll depart from their stated strategy in order to push harder into mobile. Dell has said it wants to be more like IBM, getting into higher margin services. Reuters published a detailed story on this deal which I think makes good reading.  

For Dell, becoming private means no more conference calls or SEC filings. No more Wall Street analysts bitching about weak earnings and calling into question the company’s survivability. Wall Street will essentially ignore Dell, which is what the company wants.  Executing a huge business turnaround, or complete change in direction, is quite tough to do under the scrutiny of institutional investors and analysts.  I know this to be true because I’ve been that analyst many times with many public companies. Management hates the short term pressures when their turnaround has a longer term focus.

Does this deal mean anything to the mobile industry? I don’t really think so. I think Microsoft still has a big challenge to crack the market, and they’re working hard to find a balance between making their own hardware and licensing Windows Phone 8 to Nokia, Samsung, Huawei, HTC and others.

(Chris Umiastowski is a contributing financial writer to the Mobile Nations network. You can see the rest of his posts here at AndroidCentraliMore and CrackBerry.)

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Comments

There are 41 comments. Sign in to comment

NIST says:

I wouldn't loan 2 billion dollars without some conditions. Just saying.

aubreyq says:

I know, right?

4Tiles says:

Obviously I would expect $2 billion to get Windows exclusivity, but I wonder if Dell will start making Windows Phones again. Maybe Dell and Intel will partner on making a WinPhone.

gibbage says:

Interest.  Thats the typical "condition" of loans.  Remember that MS also loaned Apple money and saved them. 

NIST says:

But saving Apple was all about not having a monopoly. This is different.

Yes, however, last i checked, Microsoft got Office onto mac because of that deal. Also, Apple dropped disputes on whether Windows infringed patents of Apple related to Mac OS, and for a time (till it was discontinued on Mac OS) Internet Explorer came as the default browser on Macs. So MS got some things out of it.

based_graham says:

Dell could be a huge player in mobile but in my opinion they didn't have the vision they didn't know the potential.

chad08er says:

DVP with WP8:)

mdram says:

DVP+ with WP8 and a much faster cell radio..that I would buy...

Aaron M says:

When WP7 first came out, I thought the DVP was the star device.  It looked amazing and at the time I still thought QWERTY was important.  Now I know I don't need QWERTY but I still see some people clamoring for it.  So a new flagship DVP WP8 device may be great for them.  All that being said, I agree with the author that Dell is probably not to keen on wasting money in mobile anymore.

I still think the DVP is the coolest looking of all WP devices. Such a shame.

I read about this yesterday somewhere. I've seen less and less Dell hardware in stores, at least in Florida. Don't know if that's a coincidence or not. Was never a huge fan of their PCs.

nspooty says:

Hmmm, you're right.  The past couple of years there have been less Dell PCs in retail outlets.
I hope this is a sign they're going to pull back on competing in the cheap consumer market and return back to their roots of being an enterprise solutions provider.  It certainly seems this way as their updating their enterprise lines really well.  All the new latitudes are great.  Even so, for their consumer market they seem to be focusing on their XPS line.
But, I guess this also means MS has found their Surface and Windows Phone manufacturer.

oldpueblo says:

The DVP had some hiccups but it was still innovative and different, we need more outside thinkers.

ej1024 says:

Off course there will be some conditions.. $2b come on now of course there's something there

jcagga says:

Release venue pro with/out keyboard they might have a chance.

The whole point of the Dvp was the keyboard...

jcagga says:

Hence with and without... For more market share. Let's face it not many people want keyboard

NIST says:

True. I never use the keyboard. The Dell Venue which the Android version had no keyboard. I wish the DVP was that phone.

aubreyq says:

But without the keyboard, wouldn't that make the DVP just another black slab?

jcagga says:

It will be one of the sexiest device out there. But without the keyboard, it would not be called venue pro right??

It makes you wonder if Dell knew they were going to do this years ago.  You figure in the past 5 years Dell has bought up numerous businesses like SonicWall, SecureWorks, Boomi just to name a few of the more recent ones, with the intention to add these to its business portfolio. 
SecureWorks and SonicWall are probably kicking themselves in the ass right now, as both of these companies were growing by leaps and bounds in the IT Security market offering great products and service.  Who knows if this merger will call for the ax to fall on headcount and eliminate personnel?  Dell will no longer have access to investors buying up shares for capital investments in the IT Industry, so where will Dell get additional capital for expansion?
Sure Dell has been losing out on the tablet market to Apple, so could the investment from Microsoft mean that Dell will be making a Windows 8 tablet device specifically for Microsoft as part of the "loan" conditions?

NIST says:

You need an established manufacturing arm for your Surface family line. Hello Dell.

NIST says:

Home of the DVP and possibly where the Surface Phone will be made.

Does Dell do their own manufacturing or outsource to a third party? Anyone know their cost structure for manufacturing items?

cashcar1979 says:

Like most everyone else in Consumer tech world...outsourced

badMojo69 says:

Dell is going to flip the company once it goes private.  EOS.
 

Dell Venue Pro II please! High quality display, great camera, LTE, NFC, and all the other requirements for all high end WP8 devices.

horbeme says:

i need a littll help here, 1st i would like to know what does it mean when a company goes private cause i really dont know. 2nd what does MS gain from the 2 billion, im not assuming anyone would know the actual facts but what woudl be or could be the benefits of this loan to them. who will this affect? cause i really dont know

ctleng76 says:

Dell is currently a publically traded company.  That means that they sell shares of their company on the open stock market.  When you buy a share, and anyone can, you actually own a small piece of the company.  The problem from the company's aspect, is that when shareholders own the majority of the shares of your company, you begin to lose control of that company.  Michael Dell is going to buy up enough shares so that he becomes the majority owner of the company, and he is going to take the company private, meaning the public will no longer be able to buy up shares of Dell.

aubreyq says:

Good job on that explanation!

tekhna says:

It's pretty obviously an attempt to shore up their enterprise arm and try to keep another OEM from moving (and taking further steps) towards ChromeOS/Ubuntu. Bets on how long it takes for Dell to stop selling Ubuntu PCs in India?
 

Big Supes says:

Dell Venue Pro II running Wp8 could be a worth candidate to tackle the business market.

aubreyq says:

Absolutely. If they could come out with that and market it aggressively to that segment...

ctleng76 says:

I believe this could be a good thing for Dell and for consumers.  Publically traded companies get so wrapped up in their stock value, and making their shareholders happy, that they begin to lose sight of the more important part, and that is making the customer happy.  This also means that if Dell were to begin to perform poorly as a company, they wouldn't have to answer to shareholders demands to down-size or re-organize.  This benefits the employees who rely on their jobs to make a living.

This deal will enable DELL to fix its product range and services. Dell has always had issues with one or the other product not being as good as required, but going private means that Dell can come up with more modern products while they axe away products that have less future.

Kweku Adjaye says:

You writers at WPCentral read my mind. I was RIGHT about to post a video on this very subject. Had it written down and everything. Kudos that you guys are on top of things.

If Dell, or anyone for that matter, made a WP8 phone with a slide out keyboard like that, I'd pay $500 for it. For gawd's sake, will someone finally do that?!?

aubreyq says:

It'd probably be more than the $500 you are offering ;-)