Dell goes private in effort to refocus

Michael Dell has announced plans to buy back his eponymous company after 25 years on the Nasdaq stock exchange.

In partnership with investment firm Silver Lake, and with a $2 billion loan from Microsoft, he’s offered $24.4 billion for the company. He currently owns about 14 percent.

Under the deal, shareholders will receive $13.65 per share in cash – a premium of 25 percent over the share price on January 11, and 37 percent over the average closing share price during the previous 90 days.

Dell believes he can work faster to turn the company around away from the watchful eye of shareholders.

“We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise. Dell has made solid progress executing this strategy over the past four years, but we recognize that it will still take more time, investment and patience, and I believe our efforts will be better supported by partnering with Silver Lake in our shared vision,” he says.

“I am committed to this journey, and I have put a substantial amount of my own capital at risk together with Silver Lake, a world-class investor with an outstanding reputation. We are committed to delivering an unmatched customer experience and excited to pursue the path ahead.”

Over the last few years, Dell has attempted to transform itself from a PC and server vendor to an end-to-end solutions provider, in the vein of IBM, HP or Oracle.

“It’s a massive undertaking because as a public company, they have to do this while keeping cash-flow going in their lines of business from each acquisition and growing those while they develop the focused solutions,” says Forrester analyst  David Johnson. “So far, they haven’t.”

The company will also have to work hard to persuade customers not to hold off purchases during the transition process,” says Carter Lusher, chief IT analyst at Ovum.

“While the company might come out of this transition stronger with a product lineup that better meets the needs of businesses and public sector organizations, there will be uncertainty as to what products and services stay, get strengthen, or get eliminated,” he says.

“Ovum recommends that CIOs need to asset the risk to their infrastructure and put into place plans should Dell’s radical hardware, software, and services shifts require changes to procurement plans.”

The buyback isn’t entirely a done deal. There’s to be what’s called a ‘go-shop’ period lasting 45 days, during which a special committee of independent directors, along with management consultants Evercore Partners, will actively look into alternatives.

“The go-shop process provides a real opportunity to determine if there are alternatives superior to the present offer from Mr Dell and Silver Lake,” says Alex Mandl, lead director of Dell’s board of directors.