Dell Plans to Go Private; Customers Concerned, Stockholders Revolting - The UpStream

Dell Plans to Go Private; Customers Concerned, Stockholders Revolting

posted Saturday Feb 9, 2013 by Scott Ertz

Dell Plans to Go Private; Customers Concerned, Stockholders Revolting

Dell has officially announced its plans to take the company private once again. Originally founded as PCs Limited in 1984 by Michael Dell, the company changed its name in 1988 when it went public at $8.50 per share. The stock has had its ups and downs in the decades that followed, and has had trouble maintaining cohesion on its board of directors, causing a focusing problem.

Through the years Dell Inc. has picked up a number of companies to add to its portfolio, but has never been able to figure out exactly how to integrate them into the company proper. Michael Dell and investment partner Silver Lake believe that going back to the setup from Dell's roots, namely owned and operated by Michael Dell personally, will give the flexibility for a single decision maker to right the ship.

Michael Dell said of the announcement,

I believe this transaction will open an exciting new chapter for Dell, our customers and team members. 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. 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.

Not everyone is happy about the decision, however. Hit the break to find out why current investors, customers and employees aren't exactly thrilled.

First, the employees. The transition comes with a number of unseen changes. For example, Dell has been running a kiosk business in malls nationwide to try and bring awareness back to the brand, and to make a few sales along the way. As the company changes its focus to more of an enterprise solution company, the kiosk business seems to be doomed. The employees of these kiosks could be transferred to other departments in the company, but more likely will be shown the door. Not exactly the warm reception employees were hoping for from the founder's buyout.

Customers are also a little weary. First, the standard consumers are worried that the transition could leave them out in the cold in the future. The kiosk example above is a good example; seeing, once again, Dell kiosks disappear from their local malls could indicate a shrinking of the company. We all know what happened to HP's sales after Leo's poorly thought out announcement.

Enterprise companies are also going to be concerned about a big shakeup within the company. Something like this could end in Dell vanishing as a brand entirely if things go poorly. If that is the case, an enterprise-level commitment to Dell hardware could leave companies with no support and no access to Dell's well-known proprietary accessories. Can you imagine what would have happened if HP had made a tablet with a proprietary OS and then closed the division down? Now imagine that scenario with a $40,000 server, or an entire datacenter full of those servers with no ability to replace certain parts.

Most importantly in all of this are the current investors. Southeastern Asset Management, Dell's largest shareholder, is planning to fight the decision. They believe that shareholders are getting screwed on the price of $13.65 per share (a 37 cent premium over the 90 day high). They believe the buyout should happen in the $24 dollar range, nearly double the 90 day high. Based on estimates, Southeastern Asset Management, with they 8.5% stake in Dell, is going to lose $800 million at the current price, with average stock prices in their purchase timeframe being in the $20 range. No wonder they want more money per share.

When all is said and done, however, there is probably nothing they can do about it. 8.5 percent is a lot, but not enough to reverse the decision of the elected board of directors. They are going to have to get a majority of stockholders together to kill this thing, and with the way the stock price has been dropping and Dell's inability to compete in the tablet or smartphone market, I think the fact that they were given a premium at all is generous.

Not all third parties are worried about the change, though. Microsoft did kick in $2 billion of the $24 billion needed to make it happen. Microsoft seems to think Dell as a private entity has merit. How about you? Will Dell rebound with this decision or is this the end of one of the longest-running PC brands? Sound off in the comments.


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