Michael Dell has prevailed in the hard fought $24.8 billion leveraged buyout battle to keep control of Dell, the company he founded 29 years ago from his dorm room at the University of Texas.
"I am pleased with this outcome and am energized to continue building Dell into the industry's leading provider of scalable, end-to-end technology solutions," said Michael Dell, chairman and CEO of Dell, in a press statement. "As a private enterprise, with a strong private-equity partner, we'll serve our customers with a single-minded purpose and drive the innovations that will help them achieve their goals."
With the backing of private equity firm Silver Lake Partners and shareholders, Michael Dell will take his company private, remain CEO, and own 75 percent of the company. In additon, he will attempt to turn Dell into a solutions provider, with increased focus on security software, big data services, and enterprise "IT in a box" hardware and software solutions.
"I'm happy this chapter in Dell's history is over and there is no longer a cloud of uncertainty hanging over Dell," said Michael Goldstein, president and CEO of LAN Infotech, a Dell partner based in Fort Lauderdale, Fla. "Partners can now move forward and don't have to answer questions from customers about 'that Dell situation,'" he said. "I only see good things coming from this."
[Related: 7 Mounting Challenges Facing Dell]
In the loser's corner is activist investor Carl Icahn and Southeastern Asset Management, which fought equally hard for the past six months to take control of the struggling PC maker. Icahn, who owns a 9 percent stake in Dell, pushed Dell to raise his bid and offered his own deal. On Monday Icahn sent up a white flag and gave up on his fight to take control of Dell.
"Dell dodged a bullet (with Carl Icahn) and now has a chance to reinvigorate the company around a unified vision Michael has created over the last 12 months that centers around enterprise servers, security and business services," said principal analyst Tim Bajarin, at Creative Strategies.
The key to Michael Dell's win came the day Icahn was denied his day in a Delaware court by a judge that ruled against Icahn and said that a proposed shareholder vote change put forth by Michael Dell could not be struck down. After several failed attempts, Michael Dell and Silver Lake submitted a sale price at $13.75 per share, threw in a special dividend of 13 cents per share and in exchange convinced Dell's board to change the shareholder voting rules in their favor.
NEXT: Channel Partners Ask "What's Next?"For the 140,000 Dell channel partners that have worked closely with the company for the past decade, the buyout win leaves many breathing a sigh of relief and wondering what's next.
"It gives Dell's future a lot of clarity, but I still have a lot of questions about the future," said Paul Clifford, president of Davenport Group, a St. Paul, Minn.-based solution provider and Dell partner. "Dell needs to tell us what its restructuring timetable is and how they are going to do it."
While details are scant on his roadmap, Michael Dell has been open about his goals to transform his company from what he calls "Core Dell" to a different "New Dell." In a letter to shareholders Michael Dell wrote earlier this summer: "We need to transform, and we need to do it quickly."
CEO Dell has said he wants to boost sales of back-office computing networks, push storage solutions for big data companies, and continue to offer security services to help companies protect their infrastructure and client devices. Dell has said he also hopes to expand the company's $1.1 billion in annual spending on research-and-development.
As a private company, Dell does not have to be accountable to shareholders and can pursue what it wants on its own timetable. "A private Dell can make quicker and more radical changes without having to cow-tow to Wall Street," said Patrick Moorhead, principal analyst for Moor Insights and Strategy.
Winning support for his leverage buyout was hard, but rejiggering his company will be much harder, Bajarin said.
NEXT: Now The Hard Work BeginsDell is still at its core a PC maker, with 50 percent of its revenues coming from building computers (which drives 50 percent of all of its enterprise sales). It is now the third largest PC maker behind Lenovo and HP, according to Gartner's latest figures of the shrinking PC market. According to Dell's most recent quarterly earnings report its PC business' operating income dropped 71 percent.
Despite losses, it's unlikely Dell will be getting out of the PC business anytime soon, say experts. Michael Dell has said 50 percent of all its enterprise business came through sales of PCs.
Dell has also struggled to bring together the various business units from 20 acquisitions made since 2009 into one unified solution. Some partners say it has taken on too much too quickly and needs to regain its focus on helping channel partners go to market with Dell solutions.
Wally Lang, general manager of Hipskind Technology Solutions Group, echoed the sentiments of other Dell channel partners interviewed. "Dell can't be everything to everybody. Hopefully, going private will tighten their focus and that will help all of us. I think they need a more defined go-to-market strategy especially with their enterprise products."
The Dell buyout will saddle the company with a mountain of debt, including $15 million of new debt from MSD capital and the $2 billion loan from Microsoft. That, according to experts, will impede Dell’s ability to grow via investing in new businesses and technologies. Credit rating agency Standard and Poor’s downgraded Dell’s credit rating four levels on Wednesday to BB- from BBB.
NEXT: Confidence Level Is High For Michael Dell
Despite go-private challenges, many analysts are bullish on Dell's future especially when it comes to growth areas of the company such as servers. Dell posted its highest-ever share of the global server market, 18.8 percent, as competitors IBM and Hewlett-Packard lost share, according to IDC. Moorhead said Dell as a private company will have a lot more freedom to gain share over HP and IBM.
"Dell can now subsidize their server pricing by driving attach for storage and networking that has much higher margins," Moorhead said.
Channel partners say Dell has been taking the right steps, moving away from commodity PC sales and helping VARs offer a more complete hardware and software solution. "We are heavily invested in Dell as a compute and storage partner," said Dante Orsini, vice president of business development at Iland, a Dell partner.
So far, Orsini said, Dell hasn’t effectively move into cloud computing. The challenge for Dell is productizing cloud services that can be integrated into the company's larger service and hardware offerings.
Since Michael Dell returned to his namesake company in 2007 as CEO he has tried to capitalize on trends in cloud, mobility, virtualization, software defined networking and data center products and services. He has found moderate success, along with missteps such as the 2010 release of the Dell Streak 5 tablet.
Dell must now focus on industry shifts and at the same time bring over 20 company acquisitions in the past three years into a unified service offering to Dell channel partners and customers, said Roger Kay, principal analyst at Endpoint Technologies Associates.
Cindy Shaw, research analyst at Discern, believes with Michael Dell the company has a best chance at future success but the company faces big internal challenges.
"Unlike IBM, with a successful track record of acquiring companies and integrating them into their business, Dell's track record is mixed," wrote Shaw in an email exchange with CRN.
But for now, Michael Dell and his allies can enjoy a important victory. For the first time since it went public 25 years ago, Dell is expects to be a private company by the end of October.
PUBLISHED SEPT. 12, 2013