CEO Michael Dell — who currently holds about a 16% stake in the company… (Tony Avelar, Bloomberg )
Once-mighty Dell Inc., which has struggled for years in a competitive and increasingly mobile device-driven industry, will try to transform itself as a private company in a $24.4-billion buyout led by founder Michael Dell.
Away from the scrutiny and glare of Wall Street, Dell is hoping the company will stand a better chance reinventing itself for the long term. But many of the fundamental challenges that have toppled the company from its perch as the world's biggest PC maker won't go away once it becomes privately held, analysts say.
"The PC guys really miscalculated the disruptive nature of tablets and the way they've cannibalized the PC business," said Tim Bajarin, president of industry analysis firm Creative Strategies Inc. "And the result is that all of them are really struggling with a shrinking market. That means that they have to find other ways to shore up their business."
In the coming years, analysts project, almost all growth in consumer electronics will come from tablets and smartphones while sales of PCs will decline.
Computing giants have taken different roads to adapt. Microsoft has launched the touch-based Windows 8 that works across traditional and mobile platforms. Intel is focusing on making chips. HP has announced a five-year turnaround plan to make the company a leader in business computing and cloud-based services.
Dell, now the world's third-largest PC maker, wants to pursue a strategy similar to HP's.
"Dell has made solid progress executing this strategy over the past four years," CEO Michael Dell said in a statement. "But we recognize that it will still take more time, investment and patience."
And so, after weeks of rumors, Dell confirmed the biggest leveraged buyout since the Great Recession. Under the terms of the agreement, the Round Rock, Texas, company will be acquired by Michael Dell and global technology investment firm Silver Lake, with a $2-billion investment from Microsoft Corp.
Michael Dell — who currently holds about a 16% stake in the company — said the going-private transaction would "open an exciting new chapter for Dell, our customers and team members."
"We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise," he said.
Dell stockholders will receive $13.65 in cash for each share of Dell common stock they hold, representing a 25% premium over Dell's closing share price of $10.88 on Jan. 11, the last trading day before rumors of a possible sale began. The company currently has a $23.3-billion market value. Dell shares rose 15 cents, or 1%, to $13.42.
Dell wants to complete the transaction by the end of July. The company said it would solicit competing offers for 45 days, although analysts said they didn't expect a counteroffer to emerge.
Despite the advantages of being a private company, Dell will be saddled with huge debt as part of the deal that may make it difficult to make large acquisitions. Already, Dell had been outbid on deals by rivals such as HP.
"I think they have some real structural issues that can't be fixed by going private," said Bill Kreher, an analyst at Edward Jones, pointing to Dell's continued dependence on traditional PC sales.
Many of the industry's tech stalwarts have struggled with PC sales. IBM sold its PC business in 2004 to Lenovo. HP briefly considered exiting the business two years ago, but then quickly backed down amid controversy.
The Dell deal quickly sent waves across the personal computer industry, with some big rivals — perhaps seeking to take advantage of the turmoil that the transition may cause Dell — slamming the company and its prospects.
"Dell has a very tough road ahead," HP said in a statement. "The company faces an extended period of uncertainty and transition that will not be good for its customers."
It added: "Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell's customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity."
Lenovo, meanwhile, said that it was focused on its products and customers "rather than distracting financial maneuvers and major strategic shifts."
Redmond, Wash.-based Microsoft didn't detail why it was making the investment in Dell other than to say it wanted to help support "the long-term success of the entire PC ecosystem."
With Dell a "key channel" for Microsoft products, the software giant probably wants to keep an eye on Dell as it reinvents itself, said Jayson Noland, a senior analyst at Robert W. Baird & Co.
"Microsoft is going to be there, talking in their ear," Noland said. "It's to keep the ecosystem healthy; it's to influence a key supplier relationship."