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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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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.


"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation














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