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Loan will help reduce the total amount of capital the troubled OEM would need to raise from banks

Following a rocky year on the markets and in sales, one of America's largest computer OEMs, Dell, Inc. (DELL) is reportedly considering going private and word is that Microsoft Corp. (MSFT) is willing to chip in an investment of $1-3B USD to help it with the plan.

The news was first broke by Bloomberg last Monday in a report saying that Dell had approached private equity firms about participating in a privatization effort.  Later in the week details on prospective share buyout pricing emerged; according to CNBC and The Wall Street Journal, the target buyout price for shares would be between $13 and $14 USD.

The move to go private was praised by some analysts.  For example Inc.'s Margaret Hefferan noted that Dell is following a broader trend of privatization, a trend that she says is driven by the typical impatience and distraction of shareholders, coupled with their tendency to push for hasty, ill-considered leadership changes.  ReadWrite Enterprise's Cormac Foster suggests that the move will grant Dell greater privacy from negative reports regarding its financials, preserving its brand image in the enterprise sector.

The latest development in the Dell saga is a big one -- CNBC and The WSJ report that Microsoft is looking to chip in $1-3B USD loan to lighten the debt load Dell needs to privatize.

Microsoft and Dell CEOS
Microsoft CEO Steve Ballmer (right) may be putting up a loan to help his buddy, Dell CEO Michael Dell (center). [Image Source: CNN Money]

Microsoft's past investments have included Barnes & Noble Inc. (BKS), a 5 percent stake in Facebook, Inc. (FB) (pre-IPO), and Microsoft's 90s bailout of Apple, Inc. (AAPL) that saved the rival from almost certain bankruptcy.

Microsoft may be able to convert the loan to private shares at some point, which could pay handsome dividends if the privatization works and Dell recovers.  


On the other hand, some analysts fear the move could alienate other PC OEMs like Hewlett-Packard Comp. (HPQ) or Acer, Inc. (TPE:2353) who have financial issues of their own.  In that regard the move could suffer from scrutiny similar to Microsoft's relationship with phonemaker Nokia Oyj. (HEX:NOK1V) or Google Inc.'s (GOOG) direct ownership of Android phonemaker Motorola, both of which have troubled third party OEMs.

The supposed loan from Microsoft is good news for Dell, should it pursue the privatization strategy.  Dell will need to borrow remaining capital from various banks -- and has reportedly approached several.  But it cuts the total pool of money Dell needs by as much as 10 percent given its current market cap ($22.88B USD @ $3.16 USD/share)

Sources: The Wall Street Journal, CNBC



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Why?
By Motoman on 1/22/2013 3:21:22 PM , Rating: 2
I see no benefit to MS in this. If Dell can't compete, let them go under. MS isn't going to lose sales of Windows or Office or whatever because of it...if Dell went away, people who would have bought Dells aren't suddenly going to buy Macs instead. They'll buy HPs, or Acers, or whatever other brand of PC that they wind up with.

Yeah, blah blah equity possible in future, blah. Whatever. All unknowns you can't count on.

The fact of the matter is that it's far too easy to build computers. There's no barrier to entry, and margins are razor-thin. PCs are a commodity product, and that's just the way it is. Either you can compete in that market, or you can't. Doesn't matter ultimately to MS - the total demand of PC sales is going to be met by the industry as a whole, regardless of how many major OEMs there is in it.




RE: Why?
By Wiggy Mcshades on 1/22/2013 3:27:57 PM , Rating: 5
If Dell becomes privately owned, they can focus on innovating instead of posting good quarterly financials. Microsoft has been sorely disappointed by the lack of innovation from its oem's. Microsoft is trying to prop up a company that could fill this void of innovation, seems to make perfect sense to me if they have the excess cash to afford it.


RE: Why?
By Shig on 1/22/2013 3:38:18 PM , Rating: 2
It's the opening bid for their IP.


RE: Why?
By HangFire on 1/23/13, Rating: 0
RE: Why?
By retrospooty on 1/22/2013 4:02:32 PM , Rating: 1
"If Dell becomes privately owned, they can focus on innovating instead of posting good quarterly financials"

I don't disagree with you, but the thought of Dell and innovation just doesn't seem likely to me. It's just hard to imagine the numbnuts in the product development area at Dell could pull off a product that A) Is compelling enough to make people want to buy it. B) is made with quality. And C) is in a competitive price range.

Stranger things have happened, but it seems to me that Dell's problem is that they are huge, undertalented, and disorganized... Not that they have to satisfy shareholders.


RE: Why?
By kleinma on 1/22/2013 5:15:58 PM , Rating: 2
Dell certainly innovated the "customize your own PC". Gateway was doing some of this as well, but before them, there was no place for the masses to get what they wanted, they could only settle for what was on the shelf.

As far as current dell products, the laptop/tablet with the flip around screen actually has gotten pretty good reviews. It seems better than most of the other convertibles that I have seen or used.

Becoming huge, under talented, and disorganized often comes from being a public company who has to constantly cut costs to appease shareholders and face fierce competition for their investment dollars. Costs get cut on the talent, on the production, and as anyone knows who has ever had to call dell, on the support.

That being said, as Dell currently stands now, I personally would not buy from them (maybe a laptop or server, def not a desktop). If they could get more focused, they could change my opinion.


RE: Why?
By Pirks on 1/22/2013 5:35:57 PM , Rating: 2
quote:
A) Is compelling enough to make people want to buy it. B) is made with quality. And C) is in a competitive price range
I got two Dell machines, one Vistro 1700 laptop and the other is Dell/Alienware M17, both are rock solid and Vostro is 5 year old, survived two OS upgrades, HDD upgrade, memory upgrade and Wi-Fi upgrade, still works great, as stable and fast as ever. Currently thinking about placing SSD with Win8 inside whenever I have time. Both boast stylish looking 100% matte surfaces everywhere, not a single sign of any crap gloss ANYWHERE on them.

The other day I was checking out a cheapo $500-$600 17 incher for my wife, possible purchase but not 100% decided yet. The only two 17" laptops that looked half decent to my eye in the given price range were Sony vaio E and Dell New Inspiron 17", actually Dell looked better and was a bit lighter and thinner AFAIR.

So these troll stories about crappy Dell are just this - troll stories for some lame idiots. Looks like Dell is pretty freakin far from being crappy. You just have to watch what you buy from them.

P.S. to be honest Razer Blade for $1500 kills absolutely every other 17 incher including even MBP 17 but the price... :( still Dell's or maybe Toshiba's lappy is a bit better given 66% reduction in price (Toshiba's is the lightest among everything 17" including MBP and Razer at just 5.7 lbs that's why I consider it too despite its ugly looks)


RE: Why?
By retrospooty on 1/23/2013 7:07:06 AM , Rating: 5
"I got two Dell machines, one Vistro 1700 laptop and the other is Dell/Alienware M17, both are rock solid and Vostro is 5 year old, survived two OS upgrades"

Not every Dell machine is bad, but they do have very high failure rates. If every machine failed, or even 20% failed they would have been out of business years ago. Dell definitely keep their repair partners very busy though, especially with the consumer products and low end business lines like Vostro. The high end business stuff is actually pretty good, but priced that way.

"So these troll stories about crappy Dell are just this - troll stories"
To you everyone is a Troll. You know, it just might be possible to express negative views about a company without being a Troll, and positive ones without being a fanboy.


RE: Why?
By DrChemist on 1/23/2013 3:59:06 PM , Rating: 2
It's all about the dividends if it works out. It's not a gift it's a loan people! They can either get interest on it like a bank would or turn it into private shares and get dividends if it all works out. Think of MSFT like a bank and Dell needs a loan for a business plan.


RE: Why?
By michael2k on 1/22/2013 4:04:40 PM , Rating: 3
Building computers isn't the problem; Foxconn and Quanta are adept at that.

Inventory management, distribution, and localized support are a problem that Dell has solved that Microsoft has not.

Imagine if you well that Dell becomes Microsoft's distribution and inventory partner for their Surface line of products; still manufactured by the same factories and workers (but with a Dell logo of course), but now available worldwide and in multiple retailers and for a multitude of products instead of just two.


RE: Why?
By AntiM on 1/22/2013 4:48:46 PM , Rating: 2
quote:
Inventory management, distribution, and localized support are a problem that Dell has solved that Microsoft has not.


I believe that's the plan. Use Dell's manufacturing and distribution to sell Surface Tablets, maybe X-Boxes?, and whatever other hardware MS decides to design in the future.


RE: Why?
By maevinj on 1/22/2013 4:08:57 PM , Rating: 2
You can just think about Dell and consumer side. They also have a very large enterprise business. I'm sure Microsoft doesnt' want to lose the server license revenue they get from Dell.


RE: Why?
By TakinYourPoints on 1/23/2013 12:45:11 AM , Rating: 2
Exactly. Dell's enterprise business is the important thing here. It makes up most of Dell and Microsoft's bottom line, the consumer stuff is more of a liability.


RE: Why?
By TakinYourPoints on 1/22/2013 11:30:33 PM , Rating: 3
Stop thinking about the consumer market. It doesn't factor into Dell because its either low-end zero-margin econoboxes or crap laptops. The high end of the consumer market is dominated either by Macs or PCs that people assemble themselves.

The same also applies to Microsoft. Most of their revenue doesn't come from the consumer market. Their entertainment division isn't in the black after over a decade and selling licenses to consumers is nothing compared to what they make selling them to businesses.

Where Microsoft makes most of their revenue is from selling Office/Windows licenses and back end services to enterprise. If Dell's business division was to go away then it would be a massive blow to Microsoft. Businesses aren't just going to go to Acer or whoever, they can't be depended upon for support. That really only leaves IBM and HP as the only real alternatives, and having so few OEMs serving businesses would again be a bad thing for Microsoft.

Dell might actually be smart to pull an IBM and drop their consumer division entirely. Its a boat anchor on their revenue at this point, lots of low quality stuff that gives the brand a bad name and makes next to no income.


"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch














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