Amid all the negative outcomes of macro uncertainty and the PC
market slowdown, the recent talk of the town seems to be the
leveraged buyout (LBO) of the world's third largest PC maker
). As per Bloomberg, Dell is soon going to transform from a
publicly traded company to a private equity firm.
The LBO agreement, slated to be announced today, is likely to be
signed by the founder Michael Dell,
) and Silver Lake Partners (a private equity firm). An estimated
purchase price of $23.0 billion is expected to be funded mostly
by a debt raising, Michael Dell's 15.7% stake and $700.0 million
cash, $2.0 billion from Microsoft and $1.0 billion from Silver
Lake. The purchase price reflects a per share price of $13.50 to
$13.75. Currently, Dell is trading at $13.27.
The idea behind the privatization is to stay away from public
scrutiny and expectations and better focus on business growth and
profitability. But the main problem remains Dell's dependence on
the PC market. Also, Dell lacks a firm footing in the servers,
storage and cloud computing space, which is a sheer negative in
comparison to International Business Machines Corp. (IBM), EMC
Corp. (EMC), and to some extent,
). Another competitor,
) is dominating the tablet space.
Considering the situation, it is hard to predict Dell's success
story, unless the company opts for diversification.
Dell's go-private strategy could also create other problems for
the company. Without the support of public money through common
shares, Dell will be required to pay high interest charges. If it
is unable to generate desired results, the company could go out
of business. On the positive side, founder Michael Dell (with his
majority share) will be better positioned to decide operational
and strategic changes that could help the company out of the
Improvement in the PC market is less likely in the near term due
to the slower-than-expected adoption of Microsoft's Win 8. But
industry observers expect a marginal growth of 2.0% in PC
shipments in 2013, which is a silver lining.
Currently, Dell has a Zacks Rank #4 (Sell).
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