Dell goes Private with Help from Microsoft

by Matt Klassen on February 6, 2013

In an effort to reverse its flagging fortunes, PC giant Dell announced yesterday what many have expected for quite some time now, the company is going private. Owner and CEO Michael Dell teamed up with investment firm Silver Lake Partners, and with a $2 billion loan from Microsoft, was able to purchase the company for $24.4 billion, or $13.65 a share.

As we’ve seen increasingly of late, while going public may be the light at the end of the tunnel for growing businesses, for many companies the added pressure from shareholders often turns out to be a train heading their way. So in an effort to buy some time to enact a long-term recovery strategy, one that will undoubtedly involve some radical restructuring and perhaps some early financial hits, Dell has decided to shed the added investor baggage. The deal, which is still subject to the normal channels of regulatory and shareholder approval, is expected to be complete before the close of Dell’s second fiscal quarter (July).

But in all this I have to wonder about the role of Microsoft, as the PC giant has once again come to the rescue of one of its hardware partners; one more company forever beholden to the Windows brand.

Back to the Dell deal itself for a moment, CEO Michael Dell had this to say:

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, long one of the world’s largest PC makers, has seen significant struggles of late, losing the number two spot in the global PC market to Lenovo this past year. In fact, both Dell and HP have struggled mightily against Asian competitors Asus and Lenovo, both American companies seemingly unable to match the products or prices these companies offer.

In a slightly humorous twist, however, instead of addressing the increasing overseas competition, HP is doing its best to poach Dell customers in the short term, offering its own comments about the unstable future for Dell, stating that, “Leveraged buyouts tend to leave existing customers and innovation at the curb.”

But back to Microsoft for a moment, who invested a cool $2 billion in the newly privatized Dell. This isn’t the first time Microsoft has invested heavily in a Windows partner company, having enacted the same strategy with Nokia several years ago, one that saw the Finnish company become an exclusive Windows Phone producer. By investing in Dell, Microsoft may be looking for similar returns, securing Dell against wandering into the Linux/ChromeOS/Android camps as many analysts have expected.

As we saw with Nokia, however (and as I’m sure HP already knows), such investment also comes with significant chatter regarding unfair advantage, and I wouldn’t be surprised if many other Windows partners are now decrying the fact that Dell may be given an unfair leg up regarding updates and releases.

In the end, going private is a huge step for Dell, one that will surely serve as either the first step towards a long recovery or the first perilous slip towards the edge of the abyss, and Microsoft, for one, is clearly hoping for the former, else it will have angered many Windows partners for nothing.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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