Microsoft May Help Dell Go Private

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Dell may be enlisting an unlikely investor in its quest to go private: Microsoft. Reports are circulating the software giant may throw as much as $3 billion to the massive buyout effort.

In its quest to go private, Dell Inc. might be getting help from an unlikely source: Microsoft Corp.

The software giant is reportedly offering between $1 billion and $3 billion in mezzanine financing, or preferred ownership that converts to equity in the event of a default.

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If it comes to pass, Microsoft for the first time will hold a major equity stake in a hardware company that’s also one of its biggest channel partners. The investment could give Microsoft big influence over the way Dell develops mobile, cloud and application products.

While Dell itself is mum on going private, steady reports are circulating that the one-time PC market leader is working with Silver Lake Partners and other private equity firms to raise money to buy outstanding shares.

Last week when news first broke of Dell possibly going private, the estimated buy-out price stood at $19 billion. Dell itself has $5 billion in liquid cash, necessitating for outside investment help. Share prices have climbed, bringing the tally to an estimated $24 billion.

Microsoft has $60 billion in the bank. Analysts and shareholders have criticized Microsoft for not investing more of its war chest or paying dividends. Even a $3 billion investment in Dell wouldn't put much of a dent in Microsoft’s cash reserves.

Going private is something Dell has flirted with before. One of CEO Michael Dell’s chief complaints is that Wall Street won’t allow companies to transform; they seek short-term results even when they compromise long-term objectives. As a private company, Dell will have more latitude to execute strategic plans and transform the company into an enterprise portfolio vendor with hardware, software, cloud computing and professional services.

Just how a Microsoft investment in Dell will affect its other OEM relationships is unknown. Microsoft rankled longtime PC partners, most notably Acer, when it released the Surface tablet in competition with their Windows 8 mobile devices.  Hewlett-Packard is Microsoft's largest OEM partner, and the two companies have substantial joint-ventures in cloud computing and professional services. Microsoft's tying up with Dell could further strain relations with these and other strategic vendors.

 

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