Created on: February 06, 2013
Wall Street is buzzing with the news that Michael Dell, founder and the largest shareholder of Dell Inc. (Nasdaq: DELL), is planning to take the public company private by the fall of 2013. The $24.4 billion deal is being supported not only by the personal wealth of Michael Dell but also by investments from Microsoft, “which counts Dell among its biggest customers,” and by support from Silver Lake Partners investment group.
The buyout of stock shares is the “largest deal of its kind since the Great Recession,” according to “Newsday.” Since the economic crisis of 2008, this type of deal has largely evaporated due to economic constraints. However, with Dell turning a new direction (but not getting any stock market traction) and Wall Street feeling bullish having survived the “fiscal cliff,” now may be the time for a risky move. Michael Dell certainly thinks so.
Stockholders of Dell will receive $13.65 a share, a 25 percent markup from where the stock stood nearly a month ago before rumors of the deal surfaced. Still, it’s a sharp decline from where the stock was once positioned (at $24 just years ago).
Reasons for going private
With the surge of the smart phone and tablet, sales of the PC have languished. “Newsday” notes that sales have declined some 3.5 percent last year alone, and companies such as Hewlett-Packard (Nasdaq: HPQ), Microsoft (Nasdaq: MSFT), and chip-maker Intel (Nasdaq: INTC) have all felt the pressure.
Although Michael Dell has repositioned his company by expanding its services and software components, with PC sales just one element of a larger overall package, Wall Street refuses to see the company this way. Instead Wall Street has chosen to focus on the declining market share for Dell’s hardware in the face of newer technology. Its stock has followed suit.
The market’s take on the decision
Analysts on Wall Street and elsewhere have been mixed in their assessment of Dell‘s decision to go private. Some see this as an opportunity to restructure the company without the constraints of shareholders, building it into a stronger company. Others have been more vocal about the problems that remain.
While Michael Dell has been able to draw strong support from Silver Like and Microsoft, the private company will still be reined in by the debt it will incur from the deal. Some $15 billion will be required in bank loans, which could worry risk-adverse clients.
Others see the deal as
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