Dell Going Private In $24.4 Billion Agreement

Nerval's Lobster writes "Dell is going private again, as the result of a $24.4 billion deal involving private-equity investors and Microsoft. The deal will close before the end of the second quarter of Dell's fiscal 2014, according to Reuters. Dell founder and namesake Michael Dell, who owns roughly 14 percent of the company's common shares, will continue to lead the newly privatized venture as Chairman and Chief Executive Officer. He will contribute his existing shares to the new company, on top of a 'substantial' additional cash investment. As with other hardware manufacturers in the space, Dell faces the specter of a softening PC market. And while Dell has made significant efforts to penetrate other markets—including the launch of a private cloud architecture based on the open-source OpenStack—that weakness has affected its bottom line: for its fiscal 2013 third quarter, the company reported an 11 percent decrease in revenue from the previous year; while it enjoyed an increase in revenue from its servers and services businesses, revenue from its Consumer division dipped 23 percent. Its Large Enterprise, Small and Medium Business, and Public revenue also declined." Another take at the New York Times.

Comments

Give the money back to the shareholders!

[Anonymous Coward]

Give the money back to the shareholders!

Re:Give the money back to the shareholders!

[malakai]

They are. You are getting all shares cashed in for 13.65 a share.

Re:Give the money back to the shareholders!

[microcars]

OP was a joke, referencing Michael Dell's 1997 comment about how he would fix Apple at the time. His response: "Close it down and give the money back to the shareholders"

Re:Give the money back to the shareholders!

[dunkelfalke]

So was Nokia, not so long ago.

Re:Give the money back to the shareholders!

[quacking duck]

But Nokia didn't have $130bn just lying around. $130bn changes everything.

Repeat after me: It's all on paper.

Amazing how little a company is worth when the stock starts sliding.

Yes, amazing how little Apple is worth without its stock. Hint: it's about $137 billion, all in the bank (well, various banks around the world).

The stock value or market cap, which is what you really meant, is $430 billion at time of this writing. Meaning almost 1/3 of the current stock value is backed by actual cash in the bank.

near future

[Anonymous Coward]

No Linux support at all...

Time to support system 76 with my dollars.

Re:near future

[Grishnakh]

I thought the "Windows Tax" wasn't really an issue though: people have complained many times before how Dell would offer a PC with Windows and Linux, and the Linux version would cost more, and it turned out the reason was that, even though the Windows license added to the cost, it was more than made up for by the kickbacks they got from all the crapware pre-loaded. Effectively, the crapware helped subsidized the computer. So if you're just going to wipe the HD and install Linux, a computer subsidized by crapware can be a pretty good deal.

Re:near future

[WWJohnBrowningDo]

This must be some bizarro alternate universe, because I'm thinking to myself: "We need to start porting crapware to Linux".

Re:near future

[witherstaff]

Already been done. It's called gnome 3

Good maybe

[Dyinobal]

Good maybe, they can get back to providing a good service/product for reasonable prices and a modest profit rather than the 100% as much money as possible even at the expense of future profits model that the current corporate culture in the world seems to mandate as the norm.

Nokia welcomes you, Dell!

[yeshuawatso]

Any deal with Microsoft in the title is destined for failure. Just ask Nokia how that's worked out for them so far.

Could be the best thing...

[DigitalSorceress]

This could be the best thing for Dell.

I'm no economist, but the limited exposure I've had to public companies is that nowadays, it's all about ONLY the next quarterly report.

The way the stock market is pushing things, you can't actually make good long term decisions for your company because the only thing that matters is short term stuff.

By buying back the stock, they're possibly giving themselves the opportunity to take control back and run the company in the best interests of long-term strategy/goals.

Good Luck Dell

Re:Could be the best thing...

[rudy_wayne]

This could be the best thing for Dell.

I'm no economist, but the limited exposure I've had to public companies is that nowadays, it's all about ONLY the next quarterly report.

The way the stock market is pushing things, you can't actually make good long term decisions for your company because the only thing that matters is short term stuff.

This is true, BUT, in this case Dell will be heavily in debt which negates any benefits of going private. Instead of Wall Street demanding an ever increasing stock price, Dell will be under constant pressure from the people who put up $24 Billion and want to see a return on their investment.

Re:Could be the best thing...

[Anonymous Coward]

Dell earns $1.2 per share. That's about 10%. Interest rates on debt are not that high and interest payments are tax exempt. So I doubt unless they screw up the business pretty badly they are going to get through just fine.

Michael Dell and Microsoft are the people putting in most of the money to begin with, and debt holders (banks) cannot put pressure (they are non-voting, by definition, else it would be just preferred stock), so I can't see why this would not work.

On the other hand Michael Dell wants to make it into a services company, that part I am not so sure about

Re:Could be the best thing...

[Bill_the_Engineer]

Funny that you mention Walmart (not that I personally like Walmart).

I think Amazon has a lot to fear from Walmart. Walmart adapts well and I see them competing directly with Amazon online in the near future. Barnes and Noble is doing quite well as a book store which may insulate them from the impending Amazon vs. Walmart price war on consumer goods and electronics.

Re:Could be the best thing...

[Alomex]

This is true, BUT, in this case Dell will be heavily in debt which negates any benefits of going private.

Not really. Most people who finance private takeovers have a much larger time span in mind. While the stock market cares about the next quarter, a typical private investment fund like Onex, Cerberus or even Berkshire-Hathaway (when acting as a lender) has a time span of 5-10 years in mind. As well they usually the have skin in the game, i.e. they just don't issue debt. They actually own part of the company or have warrants for shares.

Re:Could be the best thing...

[alexander_686]

First, your premise is wrong. Companies are judged on the future cash they will return to their shareholders – which does factor in growth. Generally speaking most financial analyst look out 10 years. When then do quarterly reports matter so much? Think of running a company as running a marathon. At the beginning of the race you predict the company will run a 6 minute mile. The quarterly results say something different. Is this a temporary result (head winds?), something natural (running uphill?) or does it reflect some fundamental change?

Now, the value of a company that will grow 8% a year for the next 10 years is very different then 12% growth. And some will mock people trying to model something 10 years out – just know that financial analyst know the shortcomings of their model.

Which takes us to Dell. Right now Dell is a fairly boring company – and I would argue that a lot of value investors have invested in the company for that reason. Michael wants to take the company in a different direction. Instead of laying out a 10 year game plan to the investors - which is going to change every 6 months – he is going to take the company private.

As to your post specifically, you have an internal contradiction that I am going to point out. You say that companies are loathed to invest in long term risky ventures to create growth. The answer is to force companies to pay dividends based on sized. So, a company that is cash poor comes up with a brilliant idea that will pay out in the future. The value of the company goes up in value – along with their shares. The company must now pay out dividends with cash they don’t have. Something like this would actually discourage the growth you are looking for.

Re:Could be the best thing...

[alexander_686]

in this case Dell will be heavily in debt which negates any benefits of going private.p>

The leverage ratio of 4 to 1 (25% equity, 75% debt) is modest. Dell’s earnings are large and stable (though declining) are more than adequate to support the debt. Plus Dell has 11 billion in their savings account, which could be used to pay down the debt.

Is Dell cranking up the risk? Yes. Into nose-bleed levels? Not even remotely.

Re:Memo to investors:

[Stargoat]

More importantly, they are getting Dell tech support.

My condolences.

"I'm no economist, but"

[Dystopian Rebel]

> I'm no economist, but

That's ok, they don't know what they're talking about either.

Dell buying himself

[inode_buddha]

Dude, if you keep buying yourself you're gonna go BLIND!

Re:Memo to investors:

[NatasRevol]

And the CEO that led them to this place.

Re:Memo to investors:

[jd2112]

More importantly, they are getting Dell tech support.

My condolences.

Actually Dell's Enterprise level support is fairly good. Fortunately I haven't had much experience with consumer level support.

Big gamble...

[erp_consultant]

Dell - the company and the person - are taking a very big gamble here. The company has been trying, mostly unsuccessfully, for the past several years to get a foothold in the service business. By most measures they have not done very well. Part of that probably stems from their terrible reputation in PC support in the consumer market. Perhaps they feel shackled by the PC business and quarterly reports and Sarbanes-Oxley, etc. And those are valid concerns.

But...Michael Dell is still going to be in charge. And they are going to have a lot of debt. And PC sales still make up a majority of their profits. In the short term it will probably mean lots of layoffs...particularly for people in the non-service sector of the company.

Sure, that is easy

[SmallFurryCreature]

Nokia has stopped with R&D, fired loads of staff and outsourced its production to cheap countries.

Its strengths were its serious R&D, the loyalty of its staff and its Scandinavian build quality.

You can ALWAYS turn a profit by slaughtering yourself, organs sell for a lot, just sell them off and you will be RICH! And dead. But RICH!

Re:Memo to investors:

[LVSlushdat]

So, sparky, anybody who likes Dell systems, and has had good experiences with their support and dares to tell about it on a public forum is, to you, a shill... Have I got that right?? I also like Dell's enterprise systems (Optiplex/Precision/PowerEdge/Latitude), and the support for those systems. Since until about 2 years ago, I'd been supporting about 200 of these Dell systems in my then day-job, and have been doing so for 10+ years, I think I might know a thing or two about these Dell systems, and have some credibility in what I've experienced with their support... But you go right ahead and keep calling people shills who haven't had the same experience as you....