Microsoft, whose Windows operating system and applications are part of Dell’s DNA, is said to be mulling a multibillion-dollar investment in the leveraged buyout of the company being engineered by founder Michael Dell, with private equity firm Silver Lake Partners taking the lead.
CNBC’s David Faber broke the news late yesterday morning and financial reporters from all over the gossip-sphere have been filling in details, possibilities and rationales since then. Depending on which unattributed report you want to go with, Microsoft’s stake would be somewhere between $1 and $3 billion in an LBO that is expected to close at about $22 billion if it succeeds and all the zeros are rounded.
Microsoft’s investment “could be enough to push a leveraged buyout of the struggling computer maker over the goal line,” write the New York Times’ Michael de la Merced and Nick Wingfield.Silver Lake … has been seeking a deep-pocketed investor to join the effort. And Microsoft, which has not yet made a commitment, has more than $66 billion in cash on hand.”
“I think Microsoft has identified this as an issue and is trying to have more say in its destiny,” IDC analyst Al Hilwa tells Goldman. “It’s clear that Microsoft wants to be more aggressive in controlling and directing the hardware ecosystem for PCs.”
Dell’s importance to Microsoft’s own growth goes beyond its traditional personal computers as tablets sold by Apple, Amazon, and Samsung that use different operating system continue to gain popularity and cut into PC sales.
“Dell is just one of a handful of vendors selling a tablet machine with Windows RT, a version of Microsoft’s operating system for chips running ARM Holdings’s technology,” write Bloomberg’s Jeffrey McCracken and Dina Bass. “Dell will also begin shipping a separate tablet using the main operating system, Windows 8, later this month.”
The hed on Tony Bradley’s piece in PCWorld suggests that should the two companies hook up, it would be “A Match Made in Heaven.”
“They’re already closely tied as partners in a symbiotic relationship that would be considered common-law marriage in most states,” he writes. “Dell could use the extra cash to facilitate the buyout, and there are potential strategic advantages to a closer Microsoft partnership.”
The Dell website puts it this way: “For more than 30 years, the Microsoft and Dell alliance has focused on one primary goal -- simplifying IT for customers. Our joint solutions integrate best-in-class software, hardware and services, and enable IT efficiency, organizational effectiveness and innovation.”
“People familiar with Microsoft’s thinking said the company is willing to strike various partnerships or alliances that are less risky than buying a company outright, in return for arrangements that give Microsoft influence over the companies’ future strategy and use of Microsoft products,” Anupreeta Das, Shira Ovide and Ben Worthen write in the Wall Street Journal.
One such arrangement is with Nokia, though that deal does not involve an equity stake. Nokia is using Microsoft’s otherwise little-used iOS in its smartphones in return for Microsoft “plow[ing] billions of dollars into marketing, research-and-development and other support.”
Microsoft also made a $300 million “strategic partnership” investment in Barnes and Noble’s Nook Media subsidiary in a deal that closed in October, as PC Mag’s Chloe Albanesius reported, giving it a 17.6% equity stake in the company.
It also made a $240 million investment in Facebook in 2007 in a relationship that “lives on,” as The Next Web points out in a piece about Bing’s backup role in Facebook’s own burgeoning search capabilities, at least giving it a leg-up on Google.
“The move is reminiscent of Microsoft’s move in 1997 to invest $150 million in then-struggling Apple Inc.,” observes MarketWatch’s Steve Gelsi in “The Tell” blog. “Apple went on to become the largest U.S. corporation.”
You’d be hard-pressed to find an observer who feels that Microsoft’s bucks would work similar magic 16 years later with Dell but as Stuart Newman writes in a Forbes blog, “Dell is feeling poorly and needs to retreat to the private company spa to regain its health.” Should it emerge fit and rejuvenated, he feels, it would also be “a boon to Microsoft.”