Dell plans to take company private

Tuesday, February 5, 2013 - 12:01pm

Dell announced plans Tuesday to go private in a deal that is worth $24.4 billion.

In a partnership involving private equity firm Silver Lake Partners, Microsoft and company founder Michael Dell, the group hopes to buy the computer maker for $13.65 a share. That's slightly higher than where the stock closed Monday but is 25% higher than where Dell was trading before rumors of the buyout began to surface in mid-January.

If successful, the Dell deal would be one of the largest leveraged buyouts in history. Shareholders have to approve the deal before it becomes official.

The once mighty Dell has struggled to compete in an ailing and increasingly competitive PC market. Dell lost a third of its market value in 2012 and failed to keep up with rivals like Apple and Samsung, both of which have done a much better job adapting to the "post-PC" landscape with tablets and smartphones.

Dell has been trying to reduce its reliance on the PC market and shift to hot businesses like cloud computing, storage and corporate software. About half of Dell's sales come from directly from PCs, and another 20% comes from PC peripherals like monitors, keyboards, printers, computer software and services.

But the problem for Dell is that all of its competition is trying to do the same thing.

"It seems to me that the toughest issue for HP, Intel, Microsoft and Dell is that they are so reliant on the desktop," said Dan Morgan, a portfoilo manager with Synovus. "I think all these companies have been struggling to duplicate the success that IBM has had in regards to focusing away from the desktop."

Dell hopes that by going private, it can more nimbly restructure and adjust its business -- without having to answer to shareholders. Going private can take a the company out of the quarter-to-quarter grind of meeting Wall Street's expectations. But it also means Dell will have less access to funds to make large acquisitions that could help transform the company.

Despite the advantage of being a private company, it will still be a difficult road ahead for Dell, analysts say.
"While going private makes sense in taking the company out of the limelight and public scrutiny, we are not sure it improves the company's fundamental position," said Shaw Wu, analyst at Sterne Agee. He noted that the company still faces tough competition from the likes of Apple, HP, Samsung, Lenovo and others.

Once the transaction is approved, CEO Michael Dell will convert his 14% stake into private shares.

Though most analysts thought the deal would be good for Dell, not all industry experts were in favor Microsoft joining the fray. Microsoft is loaning $2 billion to Dell to help finance the deal.

"The point of going private is so you can serve your own long-term goals without having to worry about short-term performance," said Carl Howe, analyst at Yankee Group'. "Having an outside investor -- Microsoft -- muddies those waters. I think Dell would have a more certain future going it alone."



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