Dell Going Private In $24.4 Billion Agreement 217
Nerval's Lobster writes "Dell is going private again, as the result of a $24.4 billion deal involving private-equity investors and Microsoft. The deal will close before the end of the second quarter of Dell's fiscal 2014, according to Reuters. Dell founder and namesake Michael Dell, who owns roughly 14 percent of the company's common shares, will continue to lead the newly privatized venture as Chairman and Chief Executive Officer. He will contribute his existing shares to the new company, on top of a 'substantial' additional cash investment. As with other hardware manufacturers in the space, Dell faces the specter of a softening PC market. And while Dell has made significant efforts to penetrate other markets—including the launch of a private cloud architecture based on the open-source OpenStack—that weakness has affected its bottom line: for its fiscal 2013 third quarter, the company reported an 11 percent decrease in revenue from the previous year; while it enjoyed an increase in revenue from its servers and services businesses, revenue from its Consumer division dipped 23 percent. Its Large Enterprise, Small and Medium Business, and Public revenue also declined." Another take at the New York Times.
Re:Could be the best thing... (Score:4, Interesting)
This could be the best thing for Dell.
I'm no economist, but the limited exposure I've had to public companies is that nowadays, it's all about ONLY the next quarterly report.
The way the stock market is pushing things, you can't actually make good long term decisions for your company because the only thing that matters is short term stuff.
This is true, BUT, in this case Dell will be heavily in debt which negates any benefits of going private. Instead of Wall Street demanding an ever increasing stock price, Dell will be under constant pressure from the people who put up $24 Billion and want to see a return on their investment.
Re:Could be the best thing... (Score:4, Interesting)
Funny that you mention Walmart (not that I personally like Walmart).
I think Amazon has a lot to fear from Walmart. Walmart adapts well and I see them competing directly with Amazon online in the near future. Barnes and Noble is doing quite well as a book store which may insulate them from the impending Amazon vs. Walmart price war on consumer goods and electronics.
Re:Could be the best thing... (Score:4, Interesting)
First, your premise is wrong. Companies are judged on the future cash they will return to their shareholders – which does factor in growth. Generally speaking most financial analyst look out 10 years. When then do quarterly reports matter so much? Think of running a company as running a marathon. At the beginning of the race you predict the company will run a 6 minute mile. The quarterly results say something different. Is this a temporary result (head winds?), something natural (running uphill?) or does it reflect some fundamental change?
Now, the value of a company that will grow 8% a year for the next 10 years is very different then 12% growth. And some will mock people trying to model something 10 years out – just know that financial analyst know the shortcomings of their model.
Which takes us to Dell. Right now Dell is a fairly boring company – and I would argue that a lot of value investors have invested in the company for that reason. Michael wants to take the company in a different direction. Instead of laying out a 10 year game plan to the investors - which is going to change every 6 months – he is going to take the company private.
As to your post specifically, you have an internal contradiction that I am going to point out. You say that companies are loathed to invest in long term risky ventures to create growth. The answer is to force companies to pay dividends based on sized. So, a company that is cash poor comes up with a brilliant idea that will pay out in the future. The value of the company goes up in value – along with their shares. The company must now pay out dividends with cash they don’t have. Something like this would actually discourage the growth you are looking for.
Re:Could be the best thing... (Score:4, Interesting)
in this case Dell will be heavily in debt which negates any benefits of going private.p>
The leverage ratio of 4 to 1 (25% equity, 75% debt) is modest. Dell’s earnings are large and stable (though declining) are more than adequate to support the debt. Plus Dell has 11 billion in their savings account, which could be used to pay down the debt.
Is Dell cranking up the risk? Yes. Into nose-bleed levels? Not even remotely.