Dell buyout plan wins key endorsement

Michael Dell’s plan to take his eponymous company private is getting closer to becoming a reality, and that’s when the real fun will begin.

Institutional Shareholder Services, a firm that advises investors on how to vote on shareholder issues, is recommending that they vote in favor of the $24.4 billion deal.

The New York Times is reporting that the recommendation is somewhat of a surprise, as Michael Dell and his private equity backers, Silver Lake, had anticipated that ISS would have recommended against it.

But ISS said it liked the buyout plan because it is a 25.5 percent premium on the share price, is all cash, and transfers the risk of the deteriorating PC business and the ongoing business transformation to the buyout group.

There also is a competing buyout offer from Carl Icahn that is slightly more valuable, but considering Michael Dell owns 16 percent of Dell, Icahn’s offer is probably a long shot.

A privately held Dell is critical to its transformation in that, as a publicly traded company, it can’t change fast enough. Michael Dell’s thinking is that, freed from Wall Street’s quarter-to-quarter mindset, he and the rest of the buyout team can make bolder moves.

The most important move will be to lessen the dominance of the PC business in Dell’s portfolio, and that means that Dell’s revenue will likely shrink in the short term, something the public markets will not react well to.

At the same time, Dell must invest in growth areas through acquisitions and through internal moves. It’s been doing that for several years, but the pace and perhaps the size will pick up. It’ll likely shed people and layers of management. All of this will cost money, and can impact the bottom line -- another unpopular result on Wall Street.

I don’t expect Dell’s strategy to change significantly, but it will move faster. The company will continue to make acquisitions focused on software and IT management. This includes cloud, mobility and cybersecurity.

The government market could be Dell’s best bet for fueling its transformation, as the need for cost savings and efficiency will make it a ripe market for solutions that simplify how you manage your IT infrastructure.

The question remains about how much of a drag the PC business has become. It’s doubtful they will sell the business, so the challenge will be how to integrate it into this evolving Dell model.

It’ll be fun to watch because it’ll impact all aspects of Dell’s business: how it partners with other companies, how it interacts with customers and where the company invests.

I’m optimistic, but that doesn’t mean the path forward will be easy. There will be stumbles, and there will be mistakes, but the company’s greatest days may be ahead of it.