Dell Buyout Draws Analyst Praise, HP Attention, Lawsuit Threats

By Jeffrey Burt  |  Print this article Print

The $24.4 billion Dell deal comes with challenges, analysts say, while rival HP begins targeting customers that may be edgy about the buyout.

The announcement by Dell executives that the company is going private in a massive $24.4 billion leveraged buyout surprised few in the industry, given the weeks of public speculation, but that didn’t slow down the pushback from competitors and some annoyed shareholders.

Soon after the company announced the deal Feb. 5, officials at Hewlett-Packard released a statement saying they would target Dell customers who might be antsy about what the buyout would mean for them. At the same time, the first of the anticipated threats of shareholder lawsuits surfaced, with lawyers from a New York firm saying they are investigating whether Dell’s board of directors violated any laws by approving the plan to sell the company to a group headed by founder and CEO Michael Dell and whether shareholders were getting a fair price.

However, the response from analysts was for the most part positive, saying that taking the company private will give Dell executives the time and space—away from the spotlight of Wall Street and the pressure of hitting quarterly financial marks—to continue their efforts to remake Dell from a PC and server maker to an enterprise IT solutions provider, a journey the company began when Michael Dell returned to the CEO seat in 2007.

During that time, Dell has aggressively pursued acquisitions that give it the wide-ranging enterprise capabilities it needs, from Perot Systems in services and Force10 Networks in networking to Wyse Technology and Quest in cloud and software, EqualLogic and Compellent in storage, and SecureWorks in cloud security.

All the while, Dell has been hindered by its reliance on the PC industry—PC sales and related products still account for more than 50 percent of the company’s revenues, according to Gartner analyst Adrian O’Connell. At a time when the global PC market is seeing falling sales numbers as consumers turn to tablets and smartphones, that’s a difficult position to be in.

In an interview with eWEEK, O’Connell said it’s almost a case of two Dells: the new Dell, which is focusing on enterprise technology solutions, and the old Dell, which is still steeped in its PC heritage. “There are some real challenges in the old Dell part of the business,” he said.

Michael Dell first approached the board of directors in August 2012 with the idea of taking the world’s third-largest PC vendor private. According to a Bloomberg report, board members also at one time considered splitting Dell in two, with one company selling PCs and the other focused on enterprise IT technology. Reports about the leveraged buyout plan first started surfacing in January. Under the deal, Michael Dell will retain control of the company, with equity firm Silver Lake Partners putting in $1 billion and Microsoft another $2 billion. Shareholders will get $13.65 for each share of common stock, about a 25 percent premium.

“The deal will allow Dell to pursue its long-term strategy without having to endure the commercial market’s constant scrutiny,” Charles King, principle analyst with Pund-IT Research, wrote in a Feb. 5 research note. “That may sound picayune but in looking at Dell’s balance sheet, you find a company that has been consistently profitable (in fact, 2012 was reportedly Dell’s best year) while its largest traditional business (PCs) has been under significant, increasing pressure. In spite of that, the company’s shares have lagged those of many competitors. Going private should allow Dell to escape the ‘noise’ of the market’s obsession with short-term financials and better focus on the ‘signal’ of its long-term strategy.”