Michael Dell once gave up day-to-day control of the computer company
that bears his name - and everything began to go south. Now the
billionaire is cementing his grip over the firm to try to restore it to
its former glory.
The billionaire roped in private equity house Silver
Lake and Microsoft Corp, to take his 28-year-old company private for
$24.4 billion in the second-largest buyout in technology history.
Tuesday's announcement, Dell who once upbraided Apple Inc co-founder's
Steve Jobs for trying to rescue the Mac-maker - enthused about the
"exciting new chapter" his company was embarking upon.
investors and Dell himself have said little on the subject, some
analysts believe the brash, combative Texan native, having once
propelled his company from a college dorm-room project to the pinnacle
of the personal computing world, may be itching to repair his reputation
as a visionary CEO.
In the years since he returned in 2007 to
re-take the reins at Dell Inc, the company has bled market share to the
likes of Hewlett-Packard and Lenovo and is now fighting to stem a steep
decline in PC sales.
"Michael Dell is once again hungry. Thirty
years ago, we think he hungered for success and wealth. In 2013, we
think he hungers to restore his legacy and personal balance sheet," said
Cindy Shaw, a managing director and research analyst at investment
advisory firm Discern Inc.
"Today, he has the advantages of a global footprint, brand name recognition and connections."
was upheld as a model of innovation as recently as the early 2000s,
pioneering online ordering of custom-configured PCs and working closely
with Asian component suppliers and manufacturers to assure rock-bottom
But as of 2012's fourth quarter, Dell's share of
the global PC market had slipped to just above 10 percent from 12.5
percent a year earlier as its shipments dived 20 percent, according to
research house IDC.
That the company will go private is not
necessarily a new idea; Michael Dell told an investor conference in June
2010 he had considered it before.
But by pulling the trigger now,
the 47-year-old billionaire can focus on reversing its fortunes by
concentrating on higher-margin corporate IT and services - borrowing a
page from IBM . He will do so free from the distractions of running a publicly traded company.
still no small task for a company that built its name on customized
computers but whose star has waned, and now wants to go up against
larger rivals like HP and IBM.
Dell, who has quietly built a
highly successful investment firm even as the fortunes of his namesake
company have waned, is upping the ante. He will put up more of his own
money, contributing his 16 percent share of Dell's equity to the deal
along with cash from his private investment firm MSD Capital.
is an opportunity for Michael Dell to be a little more flexible
managing the company. That doesn't take away from the fact they will
have challenges in the PC market like they did before," said FBN
Securities analyst Shebly Seyrafi.
Dude, where's my Dell?
Dell started the company in 1984 out of his college dorm room with
$1,000, and led it to the top of the PC industry. The TV advertising
slogan "Dude, you're getting a Dell" become one of the best-known
catch-phrases of the early 2000s.
The company's early successes
made him wealthy enough to start MSD Capital, which employs 80 people in
three cities who invest his money in everything from stocks to real
estate. Forbes ranks him among the world's 50 richest, with an estimated
fortune of nearly $16 billion.
But much of his success is still tied to the company he founded, and from which he has not been able to step away.
first time he handed over the reins was in 2004, when long-time
lieutenant Kevin Rollins took over as CEO. The company was on top of its
game when Rollins stepped in, but sales and customer service slipped in
the ensuing three years, and there was a general sense of relief among
investors when Dell reasserted control in January 2007.
been no turnaround and the bottom line is Michael was the one who built
the company," Needham & Co analyst Charles Wolf said at the time.
the six years since Michael Dell resumed leadership, the company's
market share has dipped even further, as has its stock. From the start
of fiscal 2007 to fiscal 2012, a $100 investment in Dell stock would
have shrunk to just $75, including reinvestment of all dividends. That
compared with $127 for the S&P500 IT index.
derives more than half its revenue from sales of plain-vanilla PCs and
servers, is struggling along with the rest of the industry with
declining personal computer demand.
Even with the price surge
since rumors of a buyout first broke, Dell shares are still down by
roughly half from when he regained leadership. Though, to be sure, HP's
stock has also fallen about as much.
During that time the market
changed dramatically, and Dell's once-iconic built-to-order PCs have
lost favor as consumers and even businesses move toward tablets and
smartphones, a market where Dell has taken tentative and unsuccessful
That slide was magnified by Michael Dell's brash
confidence, which sometimes got him in trouble with peers, most famously
When Jobs returned to lead the company he started
in 1997, Dell famously suggested the co-founder would be better off
shutting the company and returning the cash to shareholders.
years later, Jobs had the last laugh when Apple's market capitalization
surpassed Dell's. Even given its recent share price slide, Apple remains
more than 20 times bigger than the former PC industry darling.
Dell now choosing to go private, much will hinge on the willingness of
future partners to support his potentially costly turnaround effort.
Some support has already been received via a $2 billion loan from
Microsoft to help fund the deal.
"This gives him flexibility. The
market wasn't valuing the company at where he thinks it should be worth
and who knows that better than him," said Phil Silverman, managing
partner at Kingsview Capital.
© Thomson Reuters 2013