Mr. Denali, aka Mr. Dell, Will Indeed Go Private

by Thom Forbes, Feb 6, 2013, 7:52 AM

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After weeks of aligning ducks –- most notably global technology investment firm Silver Lake but also including MSD Capital, a $2 billion loan from Microsoft and other debt financing from Bank of America Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets -- Michael Dell announced yesterday that he will lead Dell back into private hands for $13.65 in cash for each outstanding share. Dell, who now owns 14% of the company, will remain as CEO and chairman.

“Michael Dell’s proposed $24.4 billion deal to take his company private marks an audacious bid to use his immense fortune to rescue the personal computer maker he founded three decades ago in his college dormitory room,” write the Financial Times’ David Gelles and Henny Sender.

“If history is a guide,” Dell has about two years “to transform the flagging company that bears his name,” opines Wired’s Michael V. Copeland, before investors get antsy. After all, the point of taking a company private is to build it up and take it public again, producing boodles of profit for everyone. 

To pull it off, “Dell the man needs to summon some of the fire and creativity that built his company and made the Dell business model so famous every competitor on the planet copied it,” Copeland writes.

“Without the scolding gaze of Wall Street,” says USA Today’s Scott Martin, “Dell can institute massive layoffs, slash underperforming businesses and take new leaps into the software, services, mobile, cloud- and data center-based business that promise higher profit margins.”

“A popular marketing campaign in the early 2000s screamed: ‘Dude, you're getting a Dell!’ Tim Bradshaw points out in a Financial Times piece that tracks the company’s fortunes over the years. “Now Mr. Dell himself wants to be the ‘dude,’ and to buy his company back from shareholders so he can transform it from a PC maker into an enterprise IT services provider.”

The Wall Street Journal’s Shira Ovide and Anupreeta Das take a look at Microsoft’s very calculating gamble in aligning itself with one customer without alienating all of its others –- although it has already indicated its willingness to step on toes with the release of its own Surface tablet-laptop hybrid last year. 

"For Microsoft, it crossed the Rubicon when it shipped the Surface, and relationships with PC manufacturers will never be the same," Brad Silverberg, a venture capitalist and former Microsoft executive, tells them.

(The Surface Pro tablet will be available with Windows 8 Pro this Saturday –- a development that ZDNet’s Steve Ranger writes is “a very different course to the one it has pursued in recent years, and will define its strategy for the next decade.” Early reviews have been “tough,” Reuters reports.)

“The PC guys really miscalculated the disruptive nature of tablets and the way they've cannibalized the PC business,” Tim Bajarin, president of industry analysis firm Creative Strategies, tells the Los Angeles Times’ Andrea Chang and Chris O'Brien. "And the result is that all of them are really struggling with a shrinking market.”

But Dell CFO Brian Gladden tells Ovide and Das that Microsoft is “committed to the PC industry at large and to helping Dell.” And Dell has “reaffirmed its commitment to the PC business” in a regulatory filing that maintains it “is critical to our financial and cash flow models,” they write.

In the WJS’s “CIO Journal Blog,” Michael Hickins and Steven Rosenbush point out that as Dell targets the cloud-computing market for businesses, Microsoft software products will be “showcased,” citing an interview with Gartner analyst Leslie Fiering.

Microsoft is also playing a long-term game in the consumer market and can lend help there as well. CEO Dell is a “great American success story,” but his genius lies in the areas of “e-commerce, inventory management, logistics, speedy delivery, and the maximization of working capital,” they write, and not in technological innovation. Between the rise of Apple computers as the only devices with brand distinction and the ascendancy of smartphones and tablets, Dell became an also-ran with everyday consumers. 

Competitors have been weighing in. “While Hewlett-Packard Co. openly said Dell “has a very tough road ahead” and vowed to take customers away from the U.S. peer, Lenovo Group Ltd. took a polite, diplomatic stance,” notes the Wall Street Journal’s Juro Osawa, “saying that Dell’s move won’t distract the Chinese company from executing its own strategy.”

Codenamed “Mr. Denali” -- in the tradition of the best boardroom thrillers (and isn’t Struxx Denali's "Beat 1" just perfect?) -- “discussions broke up several times over price, especially in the final weeks of the deal,” according to sources who spoke to Bloomberg BusinessWeek’s Serena Saitto and Jeffrey McCracken. 

“Secrecy was important,” write New York Times’ Michael J. de la Merced and Quentin Hardy. “Mr. Dell was known in talks as ‘Mr. Denali’ -- a nickname he liked so much he referred to himself by it regularly -- while the PC maker was ‘Osprey’ and Silver Lake was ‘Salamander.’” 

But now that the cloak-and-dagger stuff is over –- barring an unlikely higher bid –- it’s time for Mr. Denali, Osprey and Salamander to get down to the nuts and bolts of reassembling a brilliant concept whose time had come and gone.

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