After months of whispers, the rumor mill finally delivered as today Reuters revealed that Michael S. Dell succeeded in creating a $24.4 billion package that will allow Dell Inc. to go private. The deal combines a $2 billion loan from Microsoft, unannounced amount of cash from well-known venture capital fund Silver Lake Partners, as well as a cash and equity investment from Michael Dell himself.
From the looks of it, Michael Dell was tired of the company’s problematic relationship with the public and private investment firms, as well as small stockholders. The size of the deal dwarfs mergers and privatization efforts we’ve heard in the IT industry, post the Great Recession, also known as Global Financial Crisis (GFC).
The deal comes after seeing the company fall from grace. Over the past couple of years, Dell dropped from #1 to #3 position of world-wide PC makers (behind Lenovo and HP), and all the way to #5 spot once you include smartphone & tablet vendors, which admittedly are a computer vendors of today (behind Samsung Mobile, Apple Inc., Lenovo and HP). Furthermore, the company suffered a 23% Y-o-Y decrease in PC shipments.
Furthermore, Dell was trying to get into the Tablet and Smartphone market, but the products failed to take off as the company did not understand the full value of carrier model, which rules the mobile phone world. The company stepped away from core PC business and tried to enter enterprise services business, and ultimately failed to beat companies such as HP, IBM or ORACLE.
We believe that the privatization will result in reductions in present headcount, potential acquisitions and ultimately, decision to go for the consumers or for enterprise. The company is vested into a lot of markets, and the question is which markets will receive preference. Given that Microsoft is one of the investors in the privatization effort, the move might push for cloud services, as well as consumption devices, area where Microsoft is "thin". One of quotes we caught up was what Brian Gladden (CFO) stated in a call with Reuters: "under a new private company structure, we will have time and flexibility to really pursue and realize the end-to-end solutions strategy."
Bottom line is – Dell needs time and investors that won’t gun for quarterly results in older to grow and deliver true value to its new owners. Companies such as Boeing or Microsoft saw best what happens if you push for quarterly results, with capsizing of their "quick-turnover" projects such as the currently-grounded 787 Dreamliner or half-hearted attempts in mobile with Zune, Kin etc.