* Putting up cash and equity to take Dell Inc private
* Analysts say he will get more flexibility
* Questions remain over real potential for a turnaround
By Ben Berkowitz
Feb 5 Michael Dell once gave up day-to-day
control of the computer company that bears his name - and
everything began to go south. Now the billionaire is cementing
his grip over the firm to try to restore it to its former glory.
The billionaire roped in private equity house Silver Lake
and Microsoft Corp, to take his 28-year-old company
private for $24.4 billion in the second-largest buyout in
In Tuesday's announcement, Dell - who once upbraided Apple
Inc co-founder's Steve Jobs for trying to rescue the
Mac-maker - enthused about the "exciting new chapter" his
company was embarking upon.
While those investors and Dell himself have said little on
the subject, some analysts believe the brash, combative Texan
native, having once propelled his company from a college
dorm-room project to the pinnacle of the personal computing
world, may be itching to repair his reputation as a visionary
In the years since he returned in 2007 to re-take the reins
at Dell Inc, the company has bled market share to the likes of
Hewlett-Packard and Lenovo and is now fighting
to stem a steep decline in PC sales.
"Michael Dell is once again hungry. Thirty years ago, we
think he hungered for success and wealth. In 2013, we think he
hungers to restore his legacy and personal balance sheet," said
Cindy Shaw, a managing director and research analyst at
investment advisory firm Discern Inc.
"Today, he has the advantages of a global footprint, brand
name recognition and connections."
Dell was upheld as a model of innovation as recently as the
early 2000s, pioneering online ordering of custom-configured PCs
and working closely with Asian component suppliers and
manufacturers to assure rock-bottom production costs.
But as of 2012's fourth quarter, Dell's share of the global
PC market had slipped to just above 10 percent from 12.5 percent
a year earlier as its shipments dived 20 percent, according to
research house IDC.
That the company will go private is not necessarily a new
idea; Michael Dell told an investor conference in June 2010 he
had considered it before.
But by pulling the trigger now, the 47-year-old billionaire
can focus on reversing its fortunes by concentrating on
higher-margin corporate IT and services - borrowing a page from
IBM. He will do so free from the distractions of running
a publicly traded company.
That's still no small task for a company that built its name
on customized computers but whose star has waned, and now wants
to go up against larger rivals like HP and IBM.
Dell, who has quietly built a highly successful investment
firm even as the fortunes of his namesake company have waned, is
upping the ante. He will put up more of his own money,
contributing his 16 percent share of Dell's equity to the deal
along with cash from his private investment firm MSD Capital.
"This is an opportunity for Michael Dell to be a little more
flexible managing the company. That doesn't take away from the
fact they will have challenges in the PC market like they did
before," said FBN Securities analyst Shebly Seyrafi.
DUDE, WHERE'S MY DELL?
Michael Dell started the company in 1984 out of his college
dorm room with $1,000, and led it to the top of the PC industry.
The TV advertising slogan "Dude, you're getting a Dell" become
one of the best-known catch-phrases of the early 2000s.
The company's early successes made him wealthy enough to
start MSD Capital, which employs 80 people in three cities who
invest his money in everything from stocks to real estate.
Forbes ranks him among the world's 50 richest, with an estimated
fortune of nearly $16 billion.
But much of his success is still tied to the company he
founded, and from which he has not been able to step away.
The first time he handed over the reins was in 2004, when
long-time lieutenant Kevin Rollins took over as CEO. The company
was on top of its game when Rollins stepped in, but sales and
customer service slipped in the ensuing three years, and there
was a general sense of relief among investors when Dell
reasserted control in January 2007.
"There's been no turnaround and the bottom line is Michael
was the one who built the company," Needham & Co analyst Charles
Wolf said at the time.
In the six years since Michael Dell resumed leadership, the
company's market share has dipped even further, as has its
stock. From the start of fiscal 2007 to fiscal 2012, a $100
investment in Dell stock would have shrunk to just $75,
including reinvestment of all dividends. That compared with $127
for the S&P500 IT index.
Dell, which derives more than half its revenue from sales of
plain-vanilla PCs and servers, is struggling along with the rest
of the industry with declining personal computer demand.
Even with the price surge since rumors of a buyout first
broke, Dell shares are still down by roughly half from when he
regained leadership. Though, to be sure, HP's stock has also
fallen about as much.
During that time the market changed dramatically, and Dell's
once-iconic built-to-order PCs have lost favor as consumers and
even businesses move toward tablets and smartphones, a market
where Dell has taken tentative and unsuccessful steps.
That slide was magnified by Michael Dell's brash confidence,
which sometimes got him in trouble with peers, most famously
When Jobs returned to lead the company he started in 1997,
Dell famously suggested the co-founder would be better off
shutting the company and returning the cash to shareholders.
Nine years later, Jobs had the last laugh when Apple's
market capitalization surpassed Dell's. Even given its recent
share price slide, Apple remains more than 20 times bigger than
the former PC industry darling.
With Dell now choosing to go private, much will hinge on the
willingness of future partners to support his potentially costly
turnaround effort. Some support has already been received via a
$2 billion loan from Microsoft to help fund the deal.
"This gives him flexibility. The market wasn't valuing the
company at where he thinks it should be worth and who knows that
better than him," said Phil Silverman, managing partner at