Report: Dell May be Going Private
January 14, 2013 8:34 PM
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Dell is in buyout talks with two private-equity firms
In an attempt to one day resurface as a true competitor in the computer technology industry, Dell is looking to go private.
An anonymous source recently told
that Dell is in buyout talks with two private-equity firms. The talks are in their earliest stages, so it's unclear if the buyout will go through.
Dell is likely looking to go private because it lost one-third of its value last year alone. PC sales are slow since PC demand can't keep up with that of mobile devices, and Dell has to hear about its financial failures from shareholders each quarter.
Dell's market value was $18.9 billion as of January 11. Its enterprise value is 4.4 times earnings before taxes, depreciation, amortization and interest for the last year, making it a lower valuation than every PC maker bigger than $1 billion with the exception of Hewlett-Packard.
Like some other PC makers, Dell was hoping that Windows 8's release would help boost sales of its hardware. However, Windows 8 device sales haven't been that impressive. While Microsoft happily announced
60 million Windows 8 licenses sold
just last week, that doesn't mean Windows 8 devices are flying off the shelves. Dell is still waiting on a sales boost for devices like the Dell XPS 12 convertible tablet.
third quarter in 2012
, Dell's profit fell 47 percent to 39 cents per share while revenue dropped 11 percent to $13.7 billion from a year previous (Wall Street expected $13.9 billion). Its net income fell from $893 million (49 cents per share) in Q3 2011 to $475 million (27 cents per share) in Q3 2012.
For the same quarter, Dell's PC shipments fell 8.3 percent from a year earlier.
Dell predicts fourth quarter revenue of $14 billion to $14.4 billion, which is a bit less than the $14.5 billion analysts were shooting for. In Q4 2011, revenue was $16 billion.
One good aspect is that Dell's shares increased 13 percent today after news of the possible buyout had spread.
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1/14/2013 10:57:04 PM
Going private isn't exactly giving up. By going private, they answer to a single, longer-term investor. This removes some of the short-term pressure so that they
make the difficult decision to invest in the future and take some short term loses to become more competitive in the long run.
It's like how some companies go bankrupt, but re-structure and come out stronger. On the surface it sounds bad, but in the grand scheme of things, it's better for the company.
I hope this will allow Dell to turn things around. They've had some flashes of good products, but overall they seem stagnant compared to Asus and other newer entrants. HP and Dell are the last of the old guard of U.S. PC makers, and I think Dell is actually making the smarter move (vs. what HP is doing).
1/15/2013 9:50:31 AM
Here's how "going private" works at least 50% of the time with these firms.
1) Firm buys a controlling interest in Dell
2) Firm replaces board members with people they control
3) New board members hire a 'consulting firm' that just so happens to have connections to (or even just plain is) the private equity firm
4) New board takes out loans against company capital to continue paying 'consulting firm' despite no changes being made
5a) In the unlikely event that Dell manages to turn things around, private equity firm gets rich!
5b) In the far more likely event that Dell ends up bankrupt, private equity firm gets rich! (And the banks that offered Dell loans in the first place get the shaft).
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