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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 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.


"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer














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