It is now official that, as widely expected, Michael Dell in tandem with Microsoft and private equity firm Silver Lake intends to take his eponymous company private, almost 25 years after its IPO. The $24.4 billion buyout would be financed with Michael Dell’s cash and equity, cash from Silver Lake, and a $2 billion credit line from Microsoft. Four major investment banks – Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets – are financing the debt.

If the deal gets shareholder approval – and the 25% premium being offered, over the stock price of just a couple of weeks ago, suggests that it will – the awkward question arising is: how will this maneuver help the company’s fortunes?

The key motivation for the deal is increased flexibility in managing the company. But that’s not an end-goal itself. PAC believes the delisting could help toward the key objective of improved company performance, but only if the company manages to address its critical challenges:

• PC and Mid-range Server portfolio: in a shrinking market, eroded by the rise of mobile devices and the Cloud, Dell needs to battle the Asian hardware manufacturers and find a new model to provide machines at competitive prices.
• Mobility: Dell needs to develop quickly its Mobility portfolio before it’s too late. The investment from Microsoft suggests that Dell will go along with Microsoft in tackling the Mobility domain in a more direct tie up between hardware and software co-creation – building out Microsoft’s strategy around Windows tablets.
• Enterprise Market: Dell needs to find again its sweet spot in the enterprise space, particularly as vendors like IBM, HP and EMC are increasing efforts to win in the SME arena.
• Services: Dell needs to rethink its services strategy especially as the Perot Systems acquisition did not produce the expected results. A higher orientation towards infrastructure integration may set Dell for a new start in the services market.

by George Mironescu