Mounting optimism in the markets and cheap debt has helped revive the mergers and acquisitions market. This week saw two major deals: Liberty’s takeover of Virgin Media and a $24.4bn buyout of Dell, the world’s third-largest personal computer (PC) maker.
Michael Dell, who started the firm in his college dorm room in 1984, has teamed up with Microsoft and private-equity group Silver Lake Partners to take Dell private. If shareholders accept the offer, it will be the biggest leveraged buyout since the financial crisis in 2007.
What the commentators said
Dell, once a “Wall Street darling”, is undergoing a “painful transition”, said Poornima Gupta on Reuters.com. Sales of PCs still make up most of its revenue, but this market is in decline as consumers now prefer tablets and smartphones. Dell now hopes to become a “one-stop provider” in the business computing services market: the demand for storage systems, servers and related services is growing.
Going private will mean relief from quarterly scrutiny on Wall Street and also takes away the shareholders who could interfere with the way Dell chooses to approach its turnaround strategy. Dell “will be a little more flexible managing the company”, said Shebly Seyrafi of FBN Securities. But the strategic challenge remains. And in that respect, said Lex in the FT, “it is anyone’s guess what Dell thinks he can do out of public markets that he could not do in them”.
What’s more, added Ian King in The Times, any freedom Dell gains to innovate or invest now that it has gone private “may be outweighed by a loss of flexibility from being loaded with debt”. And Microsoft may merely be trying to shore up a key distributor rather than demonstrating belief in Dell’s vision. The whole thing looks like “a colossal risk”.