Dell’s motto is “the power to do more”. The question raised by Michael Dell’s $24.4bn deal to take his namesake company private is: more of what, exactly?
In the first nine months of 2012, the company’s PC business, which still generates more than half of revenues, saw sales shrink by 13 per cent. The other half of the company, which sells corporate information technology, was flat. Profits fell by a quarter. Every business that Dell is in is either in decline (computers) or violently competitive (servers, storage, IT services). It is anyone’s guess what Mr Dell thinks he can do out of the public markets that he could not do in them.
It may be that Mr Dell – and his co-investors – are simply making a leveraged bet on a turnround in one or both halves of the business. Mr Dell, who is contributing his $3.7bn in Dell shares to the deal and making a cash investment (said to be $700m), could be acting out of ego. Microsoft’s $2bn loan in support of the deal can be explained as a form of vendor finance from a cash-rich company that needs a healthy PC market (where is Intel’s contribution, by the way?). And the availability of bank financing to cover the biggest part of the deal can be pinned on the Ben Bernanke Memorial Debt Rally.