) leveraged buyout is causing a bit of commotion within the tech
industry. The company, which was recently accused of
violating its option trading rules
, has agreed to go private in a management buyout at
$13.65 per share
. This is only a slight premium over where the stock is currently
), Dell's chief competitor, jumped on the acquisition news by
"Dell has a very tough road ahead," the company wrote, adding
that Dell faces an "extended period of uncertainty" and that the
transition "will not be good for its customers."
"Leveraged buyouts tend to leave existing customers and
innovation at the curb," HP continued. "We believe Dell's
customers will now be eager to explore alternatives, and HP plans
to take full advantage of that opportunity."
Investors seem to be siding with HP on this issue, as its
stock has risen by roughly two percent this afternoon.
Regardless, Ovum analyst Carter Lusher believes that the
buyout makes strategic sense for Dell.
"Dell is in the midst of a wrenching transition from a
supplier of commodity hardware, mainly traditional PCs, to being
a supplier of enterprise-grade IT infrastructure," he wrote in an
e-mail today. "Dell's ambition is nothing less than offering the
entire IT stack with supporting services."
Lusher believes that a "significant risk likely to face Dell
during this transition" is that enterprises and public sector
organizations may reduce their purchases "until the dust
"The implication of going private is that Dell is planning
radical changes to its strategy and product roadmap," he
continued. "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."
If Dell shifts its production to the business world, it could
greatly change the dynamic of the consumer sector. Dell is
currently one of the largest manufacturers of consumer PCs.
"Ovum sees effective communication to prospects and customers
about its strategy and product roadmap as a, if not the, critical
success factor to get through the transition," Lusher added.
"While this might sound simple it is not. Compounding Dell's
challenge is the deep seated brand identity as a 'PC company.'
Another communications challenge will be how Dell Services (built
on the Perot acquisition) shares its financials for the due
diligence phase on large, multi-year IT services deals.
"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
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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