Will Dell privatization damage Nokia's plans?
$24.4bn buy-out would see Dell owned by its founder and Silver Lake Partners, with significant investment from Microsoft
Published: 6 February, 2013
There will be much speculation over how the planned buy-out of Dell could affect the wounded PC giant's direction, but its new major shareholders - Microsoft and Silver Lake Partners - will hope one will include a successful mobile push. However, Nokia may be worried that it will be demoted in Microsoft's plans if the deal with its old-time PC partner goes through.
PC makers in general, and Dell in particular, have a dreadful track record in the mobile world that threatens to eat their lunch - remember the Axim, the Venue and the Streak, all quickly canned amid yet another change of direction in non-PC devices? So far, Dell's main contribution to the smartphone market is to have pioneered the now-popular 'phablet' format with the 5-inch Streak. Under its new privately held structure, it will need to apply that kind of lateral thinking, with far better commercial execution - which is where Microsoft may help.
Speculation naturally abounds that Dell will be to the Windows giant what Motorola is to Google (though minus the patents) - a vehicle to create an integrated hardware/software experience under its own brand despite the obvious conflicts of interest with other OEMs. In Microsoft's case, those include a highly strategic alliance with Nokia, and one topic of interest is whether the firm is diminishing the role of its Finnish friend (which itself hinted at possible Android plans this week), and pursuing a multi-partner approach in tablets and handsets.
The deal itself, if it is approved by current shareholders, has been in the works since last summer and would see Dell being bought back by its founder Michael Dell - who will remain as chairman and CEO - and by private equity group Silver Lake, with Microsoft contributing a $2bn loan. This would be largest leveraged buy-out since Hilton Hotels in 2007 and Dell would delist from the US stock exchanges.
Under the proposed terms, Dell shareholders would receive $13.65 in cash for each share of common stock, in a transaction valued at about $24.4bn, a premium of 25% over Dell's closing price on January 11, the last trading day before rumors of the buy-out went public. The company has 45 days to see whether a better alternative offer emerges, so an acquisition bid is possible, and Michael Dell has recused himself from all board discussions and from the board vote to avoid accusations that he drove the deal. He plans to contribute his shares, which total about 14% of the firm, and "substantial" cash sum, to the new-look Dell. Dell had its IPO in June 1988 when it was valued at $50m.
The obvious advantage of being private in a rapidly moving market is that Dell can be more flexible and can invest more easily in projects that have medium term returms rather than immediate impact on the stock. Analysts cited Dell's Project Ophelia as an example of the kind of development that could be easier without Wall Street to please - this is a prototype $50 Android computer in a USB stick format which can be plugged into any screen, TV or peripherals, and run full desktop PC-quality software from the cloud as well as stream media.
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