Dell to Go Private?

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Founder and Chief Executive of Dell Inc., Michael Dell recently initiated efforts to take the company private and gain control.  He’s still in negotiations with Microsoft for his leveraged buyout plan.  If this deal goes through, Dell’s value could increase to $22 billion or more.  Dell will put up his 15.7% stock ownership.  The deal is to have private-equity firm, Silver Lake Management, LLC, and Microsoft contribute to the buyout.  Another $15 billion in debt financing will come from banks.  According to Bloomberg, Michael Dell also plans to use $500 million to $1 billion of his own money in addition to his 15.7% stake. 

According to an unidentified person familiar with MSD Capital, LP, (the investment firm Dell formed in 1998) Dell bought $625 million in Dell stock from January 2006 until March 2011 with help from MSD Capital.  It looks like MSD Capital will once again be contributing to the purchase of Dell stock.  According to MSD Capital’s website, the private-equity unit will invest from $100 million to $250 million on a deal, but it will consider larger or smaller opportunities depending on the investment profile.

Dell is one of the biggest distributors of Microsoft products as its PCs are loaded with Windows operating systems.  It makes sense that Microsoft would want to help one of its biggest partners.  Although, meeting one of Microsoft’s demands could affect whether this deal closes. 

According to unnamed sources, Microsoft wants a say in Dell’s operations for the $2 billion it’s pleading in the deal.  In an interview with the WSJ, Microsoft CEO Steve Ballmer, declined to comment on Dell except to say he wants all of Microsoft’s key partners “to be as strong as they can possibly be.”  And, on Tuesday, Jess Blackburn, Dell’s spokesman, said the company won’t comment on speculation. 

Dell founded the company in 1984 from his dorm room in college.  He became CEO again in 2007 after sales started to fall.  He’s been buying his way into new markets by acquiring software makers and storage to diversify company sales.  Half of Dell’s revenue still comes from desktop and notebook computers.  He’s also introduced cost-cutting measures including layoffs and trimming of management ranks.  Dell is the world’s third-largest computer manufacturer.

Dell will have the ability to invest more heavily in mobile computing, by taking his company private, according to Rich Kugele an analyst at Needham and Co.  If the deal goes through, this will be the largest buyout of its kind since the start of the financial crisis.


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