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.

Ovum’s Lusher agreed.

“Compounding Dell’s [communications] challenge is the deep-seated brand identity as a ‘PC company,’” he wrote. “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.”

Another challenge will be to see how involved the new partners—including Microsoft—will be in the day-to-day operations of the company, according to Pund-IT’s King.

“Much has been made of [Microsoft’s $2 billion] investment in the Dell merger, and how that might impact Microsoft’s relationships with other vendors,” King wrote. “Given Dell’s singular focus on x86, the company is obviously a hugely important Microsoft partner, and vice versa. We just hope that Redmond doesn’t use its investment to try exerting pressure to its own benefit. If that occurs, both companies would likely suffer consequences.”

Outside of all that, the deal could face other challenges even before it closes and the company goes private. Soon after Dell announced the deal Feb. 5, rival HP started courting Dell customers with a statement that could have been echoing some of its own troubles.

“Dell has a very tough road ahead,” HP officials said in the statement. “The company faces an extended period of uncertainty and transition that will not be good for its customers. And with a significant debt load, Dell's ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell's customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity."

At the same time, at least one law firm is looking to see if any laws were violated when the board of directors voted to approve the buyout. In addition, the New York City law firm of Levi and Korsinsky questioned whether shareholders were getting fair value for their stock, and in gave a link to shareholders interested in joining the investigation.

“Under the terms of the transaction, Dell shareholders will receive $13.65 for each share of Dell stock they own,” the lawyers said in the statement. “The transaction has a total approximate value of $24.4 billion. The investigation concerns, among other things, whether the consideration to be paid to Dell shareholders is unfair, inadequate, and substantially below the fair or inherent value of Dell stock. In particular, at least one analyst set a price target for Dell stock at $16.00 per share.”