NEWS ANALYSIS: Dell is going private with the help of two major investment partners who together spent $24.4 billion to give the storied computer company a chance to reinvent itself.
Dell has made an historic move as it tries to reinvent its business out of the glare of constant stock market observation in an attempt to avoid a decline into irrelevance and eventual extinction.
The company and its partners announced on Feb. 5 that they spent $24.4 billion or $13.65 per share to become a privately operated company.
Michael Dell, who owns about 14 percent of Dell, along with Silver Lake Partners, will acquire the company. Microsoft will also kick in a $2 billion loan to help complete the transaction
. Dell called the move “an exciting new chapter” for the company he founded.
But what Dell might say is exciting could really just be an end of an era for his company. There was a time, after all, when Dell was the PC market’s leader and one of the most successful companies in the entire IT industry. Dell was supposed to be the leader, not the company clinging to its past.
But why did Dell take the drastic and expensive move of going private? It speaks to the surprising decline it has experienced over the last several years as it was blindsided by the rapid move to mobile devices, which has cut into sales of larger desktop and laptop computers.
Here are the various reasons why Dell went private:
1. The PC market is in decline
It’s no secret that the PC market is in serious trouble. In fact, in 2012, more tablets shipped worldwide than notebooks for the first time, illustrating the dramatic decline of PCs over the past few years. If the core PC market is declining, Dell obviously has some issues.
2. Dell’s PC business leads the decline
But perhaps Dell’s troubles in the PC space
relate in part to its own poor decision-making. The company was once the world’s top PC maker, but quickly watched HP take over the top spot. Now, Dell is the third-largest PC maker in the world behind Lenovo and is losing some of its footing in the enterprise market. That has proven extremely challenging to Dell’s business.
3. It needs to shed the fat
Unfortunately for Dell, it’s operating a business that has become quite bloated. During its 2012 fiscal year, Dell reported $62 billion in revenue. The company’s total operating expenses hit $57.6 billion, resulting in anemic profits and narrow margins. By going private, Dell might have more of an opportunity to take a breath and find ways to cut expenses.
4. Less prying eyes might be necessary for a turnaround
Dell is in desperate need of a turnaround. But dramatically revamping a business or spending a few years to try to build it back up isn’t something that shareholders don’t have patience for. By going private, Dell can escape the shareholders’ prying eyes and make the tough decisions that might hurt its operations in the near-term, but allow it to return to robust health. Being a public company isn’t an ideal situation for a company that’s struggling.