PC giant Dell announced today that it is going private as part of a $24.4 billion buyout by CEO Michael Dell and other investors, including private-equity firm Silver Lake Partners (Microsoft will also loan $2 billion). The investment group will pay $13.65 per share in cash; if shareholders approve, the transaction is expected to close by the end of the second quarter of Dell’s 2014 fiscal year. The deal, the largest of its kind since 2007, will leave Michael Dell in control of a company that needs to restructure and regroup outside of the pressures from shareholders and Wall Street.
Dell was once the dominant player in the desktop PC market with a market capitalization that topped $100 billion (its market cap in 2012 was just under $30 million). But in recent years it has lost ground to rivals HP, Lenovo, and Acer amid shrinking demand as more consumers opt for tablets and smartphones instead. Dell’s own attempts to break into the mobile market with smartphones and tablets have not yielded much success (in fact, the company exited the US smartphone market in 2012).
Desktop PCs still account for about a quarter of Dell’s sales, generating more than $14 billion in fiscal 2012 (ended January), and PCs as a whole account for about half, but the company is certainly moving away from PCs and toward enterprise software and services (just as IBM did in the early 2000s and just as HP is struggling mightily to do now). It has made quite a number of acquisitions in recent years to boost its offerings in data storage, cloud computing, and big data.
Transitions of this type are often difficult (again, see HP) and there are no guarantees Dell will be successful, but if this buyout goes through, it will give the company flexibility to make some hard decisions and some substantial strategic changes without having to worry about the quarter-to-quarter reactions of the market.