The deal, announced Tuesday morning, will be financed with cash and equity from Michael Dell, private equity firm Silver Lake, and a $2-billion loan from Microsoft.
”Dell has made solid progress executing this strategy over the past four years, but we recognize that it will still take more time, investment and patience, and I believe our efforts will be better supported by partnering with Silver Lake in our shared vision,” said Dell CEO Michael Dell in a statement.
Current shareholders of Dell will be receiving a 25 percent premium over market price or $13.27.
Analysts are speculating that taking Dell private is Michael Dell’s first move in transforming the company from a strict PC and peripheral manufacturer to a cloud services provider in the same way IBM did in the mid-2000s.
“This is an opportunity for Michael Dell to be a little more flexible managing the company,” FBN Securities analyst Shebly Seyrafi said to Reuters. “That doesn’t take away from the fact they will have challenges in the PC market like they did before.”
Michael Dell has commented publicly that taking Dell private will allow his executive team to engineer a turnaround for the company without the pressure from investors to maintain quarter-over-quarter growth.
Microsoft’s investment in Dell raises the question of whether a partnership between the two companies is in the works, even more extensive than the existing OEM partnership that exists. After all, Microsoft’s 2011 investment in Nokia led to Nokia becoming the flagship OEM for Windows Phone.
After news of the deal broke, competitor Hewlett Packard issued a tongue-in-cheek statement:
“Dell has a very tough road ahead. The company faces an extended period of uncertainty and transition that will not be good for its customers. And with a significant debt load, Dell’s ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell’s customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity.”