Updated 5:28 p.m. EST, Tuesday, February 5
Dell on Tuesday announced that it would be going private in a $24.4 billion buyback deal financed in part by founder and CEO Michael Dell and Silver Lake Partners, with a $2 billion loan from Microsoft.
The move will allow the Texas-based PC maker more flexibility in its operations, as it does not have to be accountable to public shareholders and is under less pressure to meet quarterly analyst expectations, as consumer tech analyst Ross Rubin of Reticle Research explained to TPM in a phone interview.
“It makes it easier for them [Dell] to do longer term investments,” Rubin said, suggesting one example may be Dell’s project Ophelia, a USB-stick-sized minicomputer, sans display, that runs Google Android and can be plugged into a generic flat-panel monitor or TV set. Ophelia is capable of running full desktop PC software from the cloud, according to a report from Quartz. That product isn’t on sale yet but Dell aims to price it at $50, according to Quartz.
Dell’s effort to privatize itself comes at a time of great upheaval throughout its core industry — the personal computer market, which relies primarily on the Windows operating system. PCs shipments are slumping, with consumers increasingly gravitating toward mobile devices such as Apple’s iPad and iPhone, as well as smartphones and tablets running Google’s Android software, all of which offer less processing power and graphics capabilities than PCs, but more portability, more convenient experiences, and greater connectivity.
Here’s a chart comparing PC shipments to shipments of mobile devices through January 2012 from Horace Deidu, a mobile analyst who founded the blog Asymco:
“I believe this transaction will open an exciting new chapter for Dell, our customers and team members,” Michael Dell said in a statement published online Tuesday by the company, continuing:
“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.”
But the plan to privatize Dell, which had been speculated about for weeks, is contingent upon the cooperation of shareholders. The $24.4 billion buyout values each public share at $13.65 in cash, which Dell noted in its official statement is 37 percent more than the average closing price per share over the past 90 days, and 25 percent greater than the $10.88 closing price on January 11, which Dell said was “the last trading day before rumors of a possible going-private transaction were first published” (though Michael Dell approached the board last August about a go-private deal, according to the company).
Dell shareholders have to approve this figure and the buyout plan at a meeting, which has yet to be scheduled.
“The shareholder meeting has not yet been scheduled,” a Dell spokesperson told TPM in an emailed statement. “We won’t speculate on the outcome of a vote.”
Before that, Dell starting Tuesday enters a 45-day “go shop,” period during which a committee will be soliciting higher bids from other prospective buyers to takeover Dell.
“We won’t speculate on its outcome,” Dell’s spokesperson told TPM of that period.
Michael Dell founded the company in his dorm in 1984 and oversaw its growth as CEO throughout most of its history, except for a two-year-period from 2004 to 2007, when he only served as chairman of the board. Dell reassumed the title of CEO in early 2007 in a bid to regain market share lost to rival Hewlett Packard (HP).
HP on Tuesday afternoon published a statement on its press website saying it planned to more aggressively pursue Dell customers:
“Dell has a very tough road ahead. The company faces an extended period of uncertainty and transition that will not be good for its customers. And with a significant debt load, Dell’s ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell’s customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity.”
Dell, which reigned supreme in PC shipments at several points in the late 1990s and in the early 2000s, in the fourth quarter of 2012 slipped to third place in terms of global PC shipment market share, behind U.S.-based H.P. and Hong Kong-founded company Lenovo, according to statistics collected by market research firm Gartner.
Analyst Ross Rubin sees this as a sign that Dell’s performance has suffered not just as a consequence of a shift to mobile, but from increased competition within the PC market itself, namely from Asian competitors with lower-cost products.
“Even within the field of Windows competitors, they’ve lost a lot of market share,” Rubin told TPM. “Take mobile out of the equation, take Apple out of the equation. You still saw Lenovo’s share grow and Acer’s share grow at the expense of Dell.”
Dell didn’t want to talk much about Apple on Tuesday. When asked by TPM about comments Michael Dell made in 1997 about a then-struggling Apple — specifically that its leaders should “shut it down and give the money back to the shareholders,” Dell’s spokesperson said “That comment has been taken out of context and is not relevant,” to the privatization move.
As to whether Dell would attempt to engage Apple on a front where the latter company has been immensely successful, smartphones, Dell was tight lipped about its plans.
“We are not making announcements regarding smartphones today,” Dell’s spokesperson told TPM.
Dell from 2010 to 2012 previously offered several smartphones running early versions Google’s Android — the Dell Streak 5, Aero, Mini, and another series running Windows Phone, the Venue and Venue Pro models, but discontinued sales in the U.S. after poor adoption.
Here’s a promotional image of the Dell Streak 5 from Google’s Android website:
Prior to that, Dell offered several “Pocket PC” devices under the “Axim” brand series, running Microsoft’s Windows CE operating system, which were discontinued in the late 2000s.
“Dell has dabbled in those markets without much success,” Rubin noted.
So the outlook for a privatized Dell remains for now similar to the course the public company pursued, just with an opportunity for longer-term plays.
“Mobility for them [Dell] right now means focusing more on the tablet market,” Rubin said, pointing toward the lineup of new Windows 8 tablets Dell offers following that operating system’s launch in late October 2012. “They’re also likely concentrating on convertible or hybrid devices,” Rubin explained, referring to computers that switch between tablet and full physical keyboard modes. The reason is to “preserve a lot of the productivity that windows is known for,” he said.
Rubin wouldn’t rule out Dell getting back into the smartphone game in a meaningful way with the launch of a new landmark product running Microsoft’s new Windows Phone 8 operating system, but said that if the company did so, it would likely be several more months or years, until Windows Phone 8 “reaches a level of demand where it might make sense for them to jump back in with a familiar partner.”
Updated to add HP’s statement and to correct two typographical errors — one reference to “24.4 million” which should have been “billion,” and a misused word “resigned” instead of “reigned.” We have since corrected the errors in copy and regret them.