Dell’s Going Private in Deal with MS and Silver Lake Private Equity

By on February 5, 2013 10:18:30 AM from JoeUser Forums JoeUser Forums

DrJBHL

Join Date 04/2002
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Interesting news. Dell’s going private in a stock buy back of $24.4 Billion (US) financed by Microsoft and the private equity firm (largest in the world) Silver Lake. Back in 2011, Silver Lake sold Skype to Microsoft profiting $5 billion (US). This turn around profit was made in 18 months, reaping a 70-80%$ internal rate of return, which was far higher than the usual rate. Microsoft purchased Skype for $8.5 billion (US). EBay also profited on the deal having 30% ownership.

“The Silver Lake-led investor group bought a majority stake in Skype from eBay in 2009 -- during the credit crisis -- for $1.9 billion in cash and a $125 million note. EBay retained about a third of the company.” - https://secure.huffingtonpost.com/2011/05/11/skype-owners-silver-lake-microsoft_n_860450.html

The current deal

“is being financed by cash and equity from Michael Dell, cash from Silver Lake, cash from Michael Dell's investment firm MSD Capital, a $2 billion loan from Microsoft and debt financing from four banks.” - http://www.reuters.com/article/2013/02/05/us-dell-buyout-idUSBRE9140NF20130205

The deal will probably close before the end of the second quarter.

This probably means some leverage for MS and Windows 8 tablets, laptops and PC’s. It might also have to do with Google’s Chromebook doubling its penetration of schools, and it being made by Hewlett Packard. Perhaps MS is seeking to counter Google’s penetration of HP via Dell. It also has to do, I believe with the competition on Cloud services provided by Google and MS. Since Google’s netbook is a good deal cheaper than a laptop, tablets might be the answer. Dell might be part of that equation.

This is just my speculation, but it might make sense for MS to be doing this since it has been having problems convincing OEMs to produce W8 tablets to their hardware recommendations, and blamed its lackluster Windows 8 sales on that.

Anyway, don’t be surprised if Dell starts producing Windows 8 tablets which adhere to MS recommendations, as well as smart phones featuring Windows 8. Dell's business has been hurt by the lack of production of tablets and phones. Also, MS is very interested in the PC producer to prevent even more shift away from PCs to the mobile device market:

"An investment in Dell could help stabilize one of the software giant's key distributors and ensure that Microsoft has a major channel for Windows." - http://online.wsj.com/article/SB10001424127887324900204578285582125381660.html

 

Sources:

http://www.reuters.com/article/2013/02/05/us-dell-buyout-idUSBRE9140NF20130205

https://secure.huffingtonpost.com/2011/05/11/skype-owners-silver-lake-microsoft_n_860450.html

http://www.wired.com/business/2011/05/microsoft-buys-skype-2/

http://www.wired.com/wiredenterprise/2013/02/hp-google_chromebook/

http://www.techspot.com/news/51450-microsoft-blames-oems-for-slow-windows-8-sales-plans-february-relaunch.html

http://online.wsj.com/article/SB10001424127887324900204578285582125381660.html

 

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February 6, 2013 8:50:58 AM from JoeUser Forums JoeUser Forums

This one flew past my radar!  Thanks for the heads up.  I suspect Microsoft has one more "Apple cloning" in mind, and dell is the lucky fellow that will be the test baby.  I love Dell, and hope this will not ruin a good product, but will have to wait to see how things turn out.

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February 6, 2013 9:08:15 AM from WinCustomize Forums WinCustomize Forums

Oh, it will probably ruin Dell.  Gives MS its in into the PC/Tablets?phone for its software(OS).  Oh well, I guess I'll keep building my PC when it breaks and put on W7.  I'll stick to dumb phones as I use it to talk and I don't need a tablet or notebook.

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February 6, 2013 9:53:00 AM from WinCustomize Forums WinCustomize Forums

Just noticed this on the news:

"The device business is a low-margin business," said Mikako Kitagawa, an analyst at research firm Gartner. "You have to sell a lot."

Selling to corporations, though, has a higher margin and, like Microsoft, "Dell has a huge customer base in the enterprise [large business] market," said Kitagawa.

It is this combination of Dell server and storage hardware with Microsoft software and services such as SQL Server and Dynamics CRM that analysts say could prove to be the most lucrative result of Microsoft's investment in Dell.

The ability for each of those companies to continue to sell their products competitively depends on their being able to create tightly integrated hardware-software systems that are more efficient and easier to manage, said David Johnson, an analyst with research firm Forrester." - http://seattletimes.com/html/microsoftpri0/2020298148_what_could_microsoft_gain_from_its_2_billion_inves.html

 

 

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February 6, 2013 1:57:50 PM from JoeUser Forums JoeUser Forums

Quoting DrJBHL,
create tightly integrated hardware-software systems

Let' see, Novell tried that (their PC business died aborning).  Sun tried that.  Apple is doing that.

But who are the major players in the Corporate world?  Not Sun, not Novell, not Apple.

 

I think I would reject that analysts opinion.  Tight integration equates to niche market.

 

Side bar: (and I do not mean for this to become another windows 8 thread) What is one of the biggest gripes against Windows 8?  App store. Tight integration.

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February 6, 2013 2:07:04 PM from WinCustomize Forums WinCustomize Forums

Quoting Dr Guy,
What is one of the biggest gripes against Windows 8?  App store.

Then that would be the same for Apple... They're both about the app store.

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February 6, 2013 3:15:29 PM from JoeUser Forums JoeUser Forums

They should make an app for that.  But it would be a pain to buy it.

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February 6, 2013 3:37:17 PM from WinCustomize Forums WinCustomize Forums

Quoting DrJBHL,

Quoting Dr Guy, reply 4What is one of the biggest gripes against Windows 8?  App store.

Then that would be the same for Apple... They're both about the app store.

 

and for Linux, all major distributions have their own packet repositories (long before Apple).

on all Linux, OS X and Windows you can install software from other sources as well.

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February 7, 2013 2:12:50 PM from JoeUser Forums JoeUser Forums

Quoting DrJBHL,
Then that would be the same for Apple... They're both about the app store.

Quoting moshi,
and for Linux, all major distributions have their own packet repositories (long before Apple).

Moshi and Doc - I am not slamming App stores.  They are great for many and for the hosting company (vertical integration),  But the selling point of Windows has always been - ANYONE can play. (It is also a problem, but that is another issue)  One of the reasons that it is so prevalent is small companies can customize like big companies.

Microsoft is trying to use the Apple/linux model, yet the market share of those 2 do not come close to windows.  Why copy #2?

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February 7, 2013 2:57:38 PM from JoeUser Forums JoeUser Forums

'cuz you're Microsoft.  You can't innovate, you can only copy. 

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February 7, 2013 3:05:44 PM from WinCustomize Forums WinCustomize Forums

Quoting Dr Guy,
Moshi and Doc - I am not slamming App stores. 

Wasn't criticizing, Dr Guy. Was referring to a comment I made on another of my posts regarding W8 falling behind Vista's uptake... where Daiwa and I noted that about the app store.

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February 7, 2013 3:14:09 PM from WinCustomize Forums WinCustomize Forums

Quoting Dr Guy,
Microsoft is trying to use the Apple/linux model, yet the market share of those 2 do not come close to windows.  Why copy #2?

 

it only seems that way if you live in the past. Microsoft does not. they know very well that smartphones and tablets are computers too. and their market share ain't so great if you count those in.

and for the small companies: just look at all those successfull independent developers that make money with iOS apps. they would probably make next to nothing if they'd have to do all promotion, distribution and sales themselves. i for sure would not have bought any app for my iPad, if i had to register an account at every developer's site, do a bank transaction with them, maybe even wait for a few days till they send me download link ... nah, can't be bothered. i'll get a gift card and the app is instantly on my device. and the developer gets my money.

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February 8, 2013 9:55:02 AM from JoeUser Forums JoeUser Forums

Quoting DrJBHL,
where Daiwa and I noted that about the app store.

Yea, I remember that.  Unfortunately for MS, I only browse the free apps.  I am not going to pay for a replacement for Putty.

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February 8, 2013 9:58:01 AM from JoeUser Forums JoeUser Forums

Quoting moshi,
and for the small companies: just look at all those successfull independent developers that make money with iOS apps. they would probably make next to nothing if they'd have to do all promotion, distribution and sales themselves

Different small companies. I am talking about the 25 or less outfits that use computers, not who create programs.  They are the ones that suffer when you restrict their options.

 

And yes, Tablets and Phones are where Microsoft has dropped the ball.  But they are not going to be #1 by copying #2.  I have one of their tablets - and am regretting it because of their stupid App store.  I can do more with an Android than with a Surface and that in the end is the going to be the deciding factor.

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