Rumor: Dell to go private—with Microsoft’s help

I don’t know if you’ve kept up with the Wall Street chatter lately, but word out there is that Dell is going to go private—and Microsoft may be involved in the move. The latest story on the subject was published by Bloomberg, and it says Michael Dell will break his own piggy bank to get majority control of the company:

By contributing his stake, worth about $3.6 billion at yesterday’s close, and another $500 million to $1 billion, Michael Dell would be putting up more than half of the total $8 billion to $9 billion equity check, with the remainder of the takeover financed by debt and possibly some of the $11 billion of cash Dell reported it had as of Sept. 30. Silver Lake and Microsoft would invest $1 billion to $2 billion each, said the people with knowledge of the talks.

The Wall Street Journal has some additional details on Microsoft’s role. It quotes "people familiar with the matter" as saying the software giant "is expected to have a say in Dell’s operations rather than being just a source of funding for the Dell buyout." The sources also mentioned that Microsoft’s role "is proving a sticking point," and that the firm is negotiating over its future say in running Dell.

Interesting. As the Journal points out, Dell is still the world’s third-biggest PC maker, behind HP and Lenovo. According to Gartner, Dell is also in the number-two spot domestically. The PC maker seems to be struggling to keep up with competitors, though; the latest Gartner figures show Dell’s shipments declined by 20.9% internationally and 16.5% domestically last quarter.

Comments closed
    • kamikaziechameleon
    • 7 years ago

    Its nice to see not all of the largest companies need to be public to compete. Very few such companies exist and doing so can be very difficult but it has a much more long term management style that is generally BETTER than publicly traded companies. Private companies simply put are more flexible since short term finances aren’t the only thing that matter and owners can’t bail at a moments notice.

    • sluggo
    • 7 years ago

    Fun fact on Microsoft investments: In 1997, Microsoft invested a whopping $150 million in the then-struggling Apple, mostly as a play to deflect attention from Microsoft’s monopoly position. The day the investment was announced, Apple’s stock rose 40% to $27 per share. Microsoft later converted these preferred shares to just over 18 million shares of common, so that $150 million investment would have been worth over $9 billion today (Microsoft sold all of it’s Apple shares long ago).

    • TechNut
    • 7 years ago

    Microsoft has been looking for a way to get into the hardware business on the PC/Server side for quite a while. It was not be accident that they released Surface.

    Microsoft is prohibited by its anti-trust agreements from owning publicly held companies that could put into a monopoly position in the market place wrt. Windows and Office.

    After Dell goes private, it is relatively easy for Microsoft, with its large corporate coffers to buyout Dell’s stake or buyout the board to acquire them. MD is trying to still have a say, but once it goes private, and MS has a seat at the table, all bets are off.

    Doing this gives Microsoft a supply chain operation, which will in turn let them do what Apple has done in more tightly controlling the OS and hardware experience.

      • just brew it!
      • 7 years ago

      [quote<]Microsoft is prohibited by its anti-trust agreements from owning publicly held companies that could put into a monopoly position in the market place wrt. Windows and Office.[/quote<] Oh, wow. If this is true, then this has gotta be the reason MS is so interested. It wouldn't put them in a monopoly position (yet), but it would certainly give them (and Dell) a lot of leverage.

    • moose17145
    • 7 years ago

    Im not sure how I feel about this. The original owner coming back and taking primary control of the helm could be either good or bad. When Jobs went back to Apple I would say he definitely turned the company around and played a main role in getting Apple to where they are today. Perhaps Michael Dell could do the same for Dell. Or perhaps he will drive the company into the ground. But considering this company is his baby… I am sure he will be trying to do everything he can to make it more successful than it already is.

    • MadManOriginal
    • 7 years ago

    From: Michael Dell

    To: MichaelDell@dell.com

    Dude, you’re getting a Dell!

      • HisDivineOrder
      • 7 years ago

      I miss that guy.

      He was like the heyday of Dell. After him, Dell just wasn’t the same. Sure, we had that Apple guy whose eyes were torn out in Jeepers Creepers making fun of that jolly, amusing fat guy from The Daily Show, but a smug, uppity semi-hipster isn’t as awesome as a pot-smoking, loser lovin’ him some Dell.

      I think we lost something when Dell let him go. I don’t think we ever truly considered what a huge loss to our culture it was at the time, either.

      Dell guy, I salute you.

      • BIF
      • 7 years ago

      [quote<] From: Michael Dell To: MichaelDell@dell.com

      Dude, you’re getting a Dell! [/quote<] Yeah, a damned expensive one. And it will require much more attention than AV, defrag and backup runs!

    • HisDivineOrder
    • 7 years ago

    I see this in the same way as I see Microsoft’s ties to Nokia. They want to have control so they can have a main player in a given market doing exactly what they want the way they want. They want a company they don’t really own and they don’t care about being the increasingly hollowed-out vessel for their larvae. They don’t care if the host dies as long as their parasites infect everything in the process.

    If they drive Dell out of business, they lost a pittance, but as long as Dell or Nokia’s death (or irrelevance) ensures the Windows product of choice in either market remains dominant and stops any movement away from the Windows ecosystem to competing platforms (android/iOS or ChromeOS/OSX, respectively) , that’s all that matters.

    They want enough control to steer the ship into the cheaper devices that lose money but don’t get cheaper windows licenses iceberg, but not so much control they have to foot the bill when the ship inevitably sinks at the end. It’s smart. Dell would be wise to find another investor because MS is going to demand a lot for the little investment they make and they aren’t going to bend over backwards to keep Dell from imploding over the long term imo.

    • StashTheVampede
    • 7 years ago

    Microsoft practically needs a “tier 1” partner with their products.

    Now that they have gotten a “real” taste of designing things for consumers, they need a OEM to help build out that vision. If MS didn’t fear the DoJ stepping in, they would have likely started building machines at least by Windows 7.

    • shank15217
    • 7 years ago

    Yes, let Dell die so it departments can scramble to Lenovo and hp whose laptops are consistently higher priced than Dell’s.

    • jdaven
    • 7 years ago

    So I’ve been thinking about this. Basically rich people are scrounging money from all over the IT and financial markets to presumably save Dell. I say let it go. Just let it go.

      • shank15217
      • 7 years ago

      you are really ignorant, I guess you don’t care about the thousands of people who work there and the fact that their server division is consistently producing good products for years. Dell shutting down is a huge blow to small and medium businesses and government trying to lower it costs.

        • jdaven
        • 7 years ago

        So you are saying Dell is too big to fail.

          • shank15217
          • 7 years ago

          idiotic comment, no one asked for your tax dollars, dell is putting its own cash. let’s have less choice in the industry.

        • HisDivineOrder
        • 7 years ago

        Instead of saving Dell while maintaining the status quo, I think Dell should trim down to the server division or any other division that is done well. Cut off the rest. Worrying about how many jobs will be lost in doing so is of course forgetting the obvious.

        If they go out of business, everyone loses their job.

        • ludi
        • 7 years ago

        Yeah, that’s it, everyone who tries to look honestly at the cost/benefit ratio of maintaining a particular business must “hate the workers.”

        Meanwhile, in the real world, propping up an inefficient business costs more jobs in the long run than creative destruction, by forcing business sectors into stagnation and tying up capital that would otherwise, eventually, employ more people in better businesses.

        Dell isn’t a failed business but their marketshare decline suggests that they need to significantly refocus their business sectors and possibly pare down the fat a bit.

          • shank15217
          • 7 years ago

          Maybe Dell going private is part of getting rid of the fat. I didn’t see any public money involved, so your rant is just that.

      • kvndoom
      • 7 years ago

      Too big to fail!!! 😛

        • shank15217
        • 7 years ago

        oh no, let’s compare Dell’s method of using its own cash to go private with Wells Fargo that got money from the government, because it’s the same thing.

    • BIF
    • 7 years ago

    I will make a prediction here:

    1. Go private.
    2. Distraction from this costly and time-intensive process makes management lose focus.
    3. Private Dell nosedives; loses market share, revenues, and bottom-line earnings.
    4. Dell goes away, Microsoft lets it go.
    5. The Alienware brand gets acquired by Microsoft or “other”.
    6. That gorgeous headquarters in Texas gets subletted out to some nondescript government agency or religious charity.
    7. Wikipedia gets updated with 1-5 above.

    End of Story.

      • Voldenuit
      • 7 years ago

      John Titor, so this is where you’ve been! 😉

        • BIF
        • 7 years ago

        LOL, +1 for making me google that name!

      • HisDivineOrder
      • 7 years ago

      I agree with you up till 4.

      4) Microsoft will have divested. An Asian firm, perhaps Asus or Samsung will buy it.
      5) Alienware will be sold to someone with deep pockets, a new interest in hardware, a tie to PC gaming, and some aspirations for advancement. Razer or Corsair seem the likeliest of candidates, but if Valve gets focused on Steambox’s, don’t be shocked if Steam were in the running. If Steam looks at it, well there ain’t nothing that Steam does that EA don’t want to do somewhat more poorly, too.
      6) I don’t know about the HQ. That could go to anyone. Perhaps the TSA could use it to waste more money. Perhaps Bobby Kotick could buy it to store his fan mail.
      7) Wiki gets updated.

        • BIF
        • 7 years ago

        LOL, I like your comments in #5.

        And we agree on the most important one, #7. 😀

    • Srsly_Bro
    • 7 years ago

    “Michael Dell will [b<]use break[/b<] his own piggy bank to get majority control of the company:" Did you refuse to just choose one and just keep both?

    • eitje
    • 7 years ago

    why go private? because Michael Dell is a prideful man and probably doesn’t want to see the empire he created collapse before he’s dead.

    • Bensam123
    • 7 years ago

    Why? Why would they go private?

    As far as making computers people want to buy… Use name brand components with things people like… Like pink cases that aren’t pure evil designed to maim any digit that comes its way.

    • jdaven
    • 7 years ago

    For all you Apple critics that talk about walled gardens, imagine Win 8 only Dell boxes locked to the MS marketplace and Modern UI.

      • chuckula
      • 7 years ago

      To all you Apple fanboys who brag about walled gardens: Aren’t you nervous that Win 8 only Dell boxes locked into the MS marketplace and Modern UI will hurt Apple’s margins?

        • jdaven
        • 7 years ago

        Touché!

        • End User
        • 7 years ago

        No. All we care about are Dell monitors.

          • derFunkenstein
          • 7 years ago

          They will only run Windows 8 too, soon!

            • kvndoom
            • 7 years ago

            aieeeeeeeeee

        • deathBOB
        • 7 years ago

        No because Dell boxes LOL

      • sweatshopking
      • 7 years ago

      for the 1% of people that want to install linux i guess it’ll suck. for the 99% that buy pc’s and stick with windows, they’ll be fine.

      • HisDivineOrder
      • 7 years ago

      That already exists. It’s called Windows RT. They’re really, really slim boxes, though. Almost flat. They have these kiddie pieces of plastic on the front that have these little notches people call “keys.” And from what I hear, their power cables are a PITA to deal with. They’re made of slick metal.

      Btw, since I don’t have to imagine it because these things already exist, I can also tell you that imho it sucks somethin’ awful.

    • tanker27
    • 7 years ago

    Back in the day, Dell’s Axim was pretty slick.

      • phileasfogg
      • 7 years ago

      Yes, it was. I still have mine. I just looked up the cpu and memory: Intel Xscale @ 300Mhz, 32MB DRAM, 32MB ROM. Power-on to usability = about 2 seconds. Much better than crappy low-end Android tablets with 32x more memory and (allegedly) much better CPUs.

    • chuckula
    • 7 years ago

    [quote<]"[Microsoft] is expected to have a say in Dell's operations rather than being just a source of funding for the Dell buyout."[/quote<] Retch. Not that I'm a huge Dell fan, but I've slapped various Linux distros on various Dells in the past without too much heartburn. Having a borg-like MS/Dell Apple-wannabe on the market isn't going to be very helpful.

      • indeego
      • 7 years ago

      There are, oh a thousand other OEMs very happy to have your business instead. This is silly, the market will just go elsewhere if Dell ignores Linux.

        • WasabiVengeance
        • 7 years ago

        Dell really is night/day more supportive than other OEMs, aside from linux-only specialists.

        • Flatland_Spider
        • 7 years ago

        No, there isn’t. There is a handful of companies that sell whitebox laptops then Dell and Lenovo out of the tier one OEMs.

        Back to the whitebox laptop ghetto isn’t a place we want to go.

          • indeego
          • 7 years ago

          It’ll work itself out. Capitalism has a way like that.

            • thecoldanddarkone
            • 7 years ago

            If it doesn’t work out, then you weren’t important enough to invest into. 😛 Sorry I had to say it. lol

    • kvndoom
    • 7 years ago

    So what was that about Dell selling Linux boxes…?

      • Deanjo
      • 7 years ago

      Probably still will considering the collaborative deals MS has in place for some linux distros such as SUSE Enterprise.

    • flip-mode
    • 7 years ago

    How is going private supposed to help Dell?

      • DeadOfKnight
      • 7 years ago

      It doesn;t make any sense to me either.

        • just brew it!
        • 7 years ago

        Going private makes business sense if their ability to compete over the long term is being hamstrung by the short time horizons imposed by Wall Street. Clearly management *believes* that this is the case; whether it’s really *true* or not is actually a separate question from “Why the heck would they do this?”

        There’s this prevailing attitude that “going public” is the ultimate prize (so why would you ever do the opposite). But the only people it is *guaranteed* to benefit are the people who had a piece of the action before the company went public, and the broker that handles the IPO. After that, stock price and next quarter’s numbers become priorities; depending on how well the company handles this it can be merely a distraction, or it can be a disaster. Either way, doing what’s best for the company over the long term becomes less important.

        There are also fewer regulatory requirements for privately held companies.

          • Sargent Duck
          • 7 years ago

          Yep. The company might have a great year long plan to increase sales, but if after 6 months investors don’t see results, they’ll demand the company scrap its plans and make short term profit at the expense of long term gain.

          You see the opposite hold true. A private company might be making the best product “X”, but as soon as they go public, shareholders start demanding they increase their margins, so they start using cheaper materials, outsource production to China…

            • superjawes
            • 7 years ago

            Basically all true, but don’t completely demonize shareholders. They can and do provide much needed cash for many companies. You just have to find the right balance between getting pretty fluid cash and having control over your long term vision.

            • BIF
            • 7 years ago

            Indeed. Shareholders are like Kickstarter; but oldschool!

      • Generic
      • 7 years ago

      If I understand correctly:
      – The ability to run the business with long term goals and profitability in mind.
      – Answering to shareholders’ demand for constant growth of the stock ticker makes the above more challenging.

      Imagine if Comcast never went public, but instead continued to build the best damned ‘pipes’ in the industry…

        • indeego
        • 7 years ago

        “Answering to shareholders’ demand for constant growth of the stock ticker makes the above more challenging.”

        This is true for every company. Increase shareholder value.

        The problem is limitless growth is pretty frikkin’ hard.

          • nanoflower
          • 7 years ago

          It’s not just growth that many stockholders are demanding, but growth this quarter and next quarter and so on. That makes it difficult if you need to move the company into new industries with a significant investment since that tends to lead to reduced values over the short run. I don’t know if that’s one of the plans for a private Dell but it’s certainly an issue with many companies where the demand for quarter to quarter growth leads to poorer decisions.

            • Flatland_Spider
            • 7 years ago

            Dell pretty much wants to remake the company like Gerstner did way back with IBM, and the rumors also suggest he wants to do some wild stuff on the consumer side.

        • superjawes
        • 7 years ago

        This is probably the best answer to this question. You CAN self invest a lot to develop or redevelop your products, but if that’s going to mean reporting a short term loss, public shareholders will not be happy. Also remember that they have powers to change leadership, which could spell disaster for those long term goals.

        Dell probably expects its desktop and possibly laptop businesses to decrease significantly over the next few years, and they want to turn inward to develop better mobile systems or refocus their boxed machines to offer SFF and/or media boxes.

      • ludi
      • 7 years ago

      Really, the only reasons to be publicly traded are:

      (a) to increase your market capitalization more easily, or beyond what the private markets will offer

      (b) because founding stakeholders want to retire or otherwise sell their share of the business, and the company cannot or does not want to convert the equity out of cash on hand

      (c) you are operating in an industry where various regulatory or reporting requirements have made it effectively impossible to continue growing without going public

      If none of those three things are in the way, it can be easier to run a private company.

        • UberGerbil
        • 7 years ago

        I couple of further nuances on (b): if you have any angel investors, they generally want their stake (plus profit) back long before the founders are ready to retire (if the founders are still there — a large number get replaced along the way) and before the company has anything like the available cash to buy them out. Thus an IPO is really the only way to pay them off.

        Also, the rules are a bit different now, but once upon a time there was a relatively low threshold for how many private investors you could have. Once you passed a few hundred, the SEC automatically considered you a public company and expected you to file all the paperwork and make the reports. This actually affected when Microsoft went public: Gates wanted to keep the company private, but their policy of handing out stock options to almost all employees and the rapid growth of the company meant that they were going to blow past that limit. So if you’re going to incur all the added paperwork and expense of being a public company, you might as well raise some cash as well. (And also reward the employees who have options — though one of the hazards of that is that you may just force some of your best / most senior people to “call in rich” and go on to other things).

      • Geistbar
      • 7 years ago

      My guess, as a more focused take on what others have said*, you can see a lot decisions that the major OEMs have made that seem to still be hurting them (and by proxy, Microsoft). Notably, they’re all associated with the word “cheap” — people don’t expect their computers to last long from these companies, and when they do buy them it’s riddled with 5,000 trials, toolbars, poorly written tools, and so on.

      A privatized Dell might be able to drop all of that garbage, raise their prices, re-market themselves on quality grounds instead of price grounds, and compete at the higher end, with the associated higher margins. This could very well be needed in the medium-long term — with new market trends (smartphones, tablets, consoles, etc.), people are generally buying and replacing their computers less frequently. The business practice of selling huge quantities of junk with small margins might not be sustainable for much longer (or more likely — sustainable with as many different OEMs as there are). If that’s the case, you’d want to be a few years ahead of your competition in the transition for new market realities.

      Also worth mentioning is that Dell seems to have a decent number of divisions that sell products related to be computers but not really part of their core business — monitors, TVs, keyboards/mice, medical software, not to mention their forays into gadgets with mp3 players, PDAs… A private Dell would allow them to refocus on what their real business is: selling computers.

      * Which I would sum up as: being better able to make long-term investments at the cost of short-term stock price.

      • shank15217
      • 7 years ago

      By letting Dell focus on its strengths and making quicker decisions and focusing on growth industries.

      • blastdoor
      • 7 years ago

      Do you mean Dell the company or Dell the man?

      I see this as Michael Dell taking out a big loan to buy up a lot of stock in a company that he thinks is undervalued. He figures he’ll make a lot of money from this deal in the long run. In a sense, it’s the ultimate “insider trade”.

      In terms of Dell the company, it probably doesn’t make much of a difference. The whole argument that avoiding the public scrutiny of Wall Street will be some huge benefit strikes me as really weak. There are plenty of companies that have managed to turn themselves around despite this scrutiny (prominent example being Apple). And in cases where public scrutiny stopped a turnaround effort, it seems like the public may have been right (crazy German dude’s botched plan to spin off HP’s PC business).

      • sluggo
      • 7 years ago

      If nothing else, it shoos away pricks like Carl Icahn, who is currently sniffing around HP’s board. They also free themselves from the obligation to tell the world how their business is doing (and the cost of doing so, which is not trivial). Since they are no longer in a business where large capital investments are needed (their model hasn’t really changed in 15 years), there’s no need to participate in public capital markets.

      As far as the Microsoft stake goes, an ownership position would permit them to legally supply to the PC operation (Dell) an operating system “at cost”, said “cost” being whatever Microsoft determines it to be. If HP is paying Microsoft $40 per license and NewDell gets the same license for $1, then NewDell immediately gains a $39 cost advantage on their machines, which is huge. The real impact will probably be much smaller, but the flexibility to dramatically and immediately impact NewDell’s bottom line remains.

      Edit: I overspoke. It’s not likely that Dell would become an operating division of Microsoft. Microsoft is only looking at an investor postion in the company, not a takeover/merger of operations. So ignore that second paragraph.

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