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By Nick Wakeman

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Nick Wakeman

Other investors join battle to buy Dell

You’d think that if you are the largest stockholder, and the company bears your name, that a move to take your firm private would be fairly easy.

But not so for Michael Dell, who, along with the Silver Lake Partners, a private equity group, are proposing to acquire the company’s outstanding stock for $13.65 a share, or $24.4 billion.

Now, two more suitors have arrived on the scene, with billionaire investor Carl Icahn, and the huge Blackstone equity group both submitting letters to the Dell board. Icahn is proposing $15 a share, while Blackstone is offering $14.25, the New York Times is reporting.

The article also says that Hewlett-Packard Co. and Lenovo had been invited by the Dell board to bid, but while they likely aren’t serious contenders, they would still probably want to look at Dell’s books.

The Dell board is entertaining counter offers to Michael Dell’s and Silver Lake’s proposal during a go-shop period to see if more lucrative offers could be found. Two of Dell’s biggest investors – Southeastern Asset Management and T. Rowe Price – have said Michael Dell’s bid is too low.

Another interesting tidbit in the Times story is that Blackstone has approached Mark Hurd, president of Oracle Corp., and former HP CEO. Hurd was fired from HP over allegations he misused company funds.

The desire to take Dell private is being driven by the need for the company to remake itself and it can do it faster and make more painful decisions as a private company.

Dell’s ride has been a fascinating one. It destroyed the concept of white box PCs by pioneering direct sales and a just-in-time inventory system. It became the world’s largest PC maker because it could deliver quality products, faster and cheaper than practically anyone.

But the rest of the world caught up, and Dell lost that advantage. It’s been an aggressive acquirer of software companies in recent years around the idea of data management as it tries to take advantage of the move to the cloud.

It’s also tried to build a services business, most notably through its acquisition of Perot, but that’s proved to be difficult.

In many ways, Dell reminds me of the video rental industry, which went from mom-and-pop video stores, which were driven out of business by the national chains such as Blockbuster and Hollywood Video. They, in turn, are now being driven aground by video streaming services such as Netflix and Hulu.

Dell, in many ways, needs decide to what it is going to be. It might be too late to come out with a whiz-bang tablet or smartphone, so that leaves the cloud and business services side of the market, which are very different business models than selling hardware.

Not having to answer to the whims of Wall Street is probably the cover it needs to make whatever changes the company decides to make.

It might have to do things that hurt its hardware business, and when so much of your business relies on those sales for the bulk of your revenues and cash flow. But when part of your business is facing slow to non-existent growth, and ever tightening margins, you need to look elsewhere and make some bold moves.

Otherwise, you’ll never return to a preeminent position in the market.

Posted by Nick Wakeman on Mar 25, 2013 at 7:24 PM


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