By now, you're most likely acquainted with the reports that Michael Dell is aiming to take his company off the market and make it private again. Reports are even suggesting that the deal could be announced as soon as this Monday. The deal would be the biggest leveraged buyout of the Post-Crisis era, as well as one of the largest ever. For this very reason, the existing problems at Dell (DELL) won't be easy to resolve.
Microsoft (MSFT) is also engaged, apparently prepared to contribute $2 billion or more of equity in the form of a preferred security. Other stories place Microsoft's contribution at between $1 and $3 billion.
It appearsthat Michael Dell is essentially about to empty his money box, meaning his ~16% stake in the company, financing by the private-equity firm Silver Lake Partners, and arrange an additional $16 billion in debt, both secured and unsecured, with banks.
The Wall Street Journal reports that the Microsoft's part actually appears to be a pivotal point for the deal, which should amaze not a soul. You don't give away $2 billion and let a company proceed the way it wishes. The critical part of the deal is to work out the ways Microsoft would and would not be engaged in Dell's business after a deal closes. But does Dell even possess anything that Microsoft would find useful? What motive does Microsoft have in saving Dell?
Interestingly, it would seem that there exists more drawback for Microsoft and Dell in this deal compared to the upside. The great upside prospect for both the companies, as I visualize it, is that they could become the nearest thing to an Apple (AAPL) like business of blending hardware and software under one roof. Having said that, I'm not sure how much closer they can get. Dell and Microsoft are already close and have good integration between hardware and software.
Microsoft has recently formulated a smart approach of launching directly into market segments where it has hit a brick wall in the past or is currently faltering. In lieu of purchasing an existing business, Microsoft prefers more to become its partner.
To further improve Bing, Microsoft partnered with Yahoo (YHOO) to replace its search and ads engines under a 10-year deal, in which Microsoft pays Yahoo more than 80 per cent connected with the Bing searches on Yahoo properties.
Microsoft also risks alienating its associations with other OEMs, especially HP (HPQ) and Lenovo (LNVGY.PK). There has been this debate before regarding Microsoft making prototype smartphones and tablets. It's a high risk business, but at the same time, exactly where else would the OEMs go? And will an engaged Microsoft put a stop sign at Dell's Linux initiatives? Dell offers Red Hat (RHT) and SuSe enterprise servers and is working together with Canonical to certify Ubuntu on the PowerEdge servers. What will happen to that? If the deal gives Microsoft a board representation, it would want to exert the kind of influence that guarantees Dell best represents Redmond's own pursuits, and those pursuits will obviously be launching out more Touch Ultrabooks, hybrids and simple laptops running Windows 8.
Dell has refrained from smartphones for now, because of its previous disasters on earlier models like the Streak a couple of years back. But Microsoft is restless for OEM partners. Will it force Dell to offer Windows 8 devices? If so, how will Samsung (SSNLF.PK) , Nokia (NOK) , LG and HTC take it, if they are not attached as a supplier?
Taking these hassles into consideration, it's tricky for me to envisage an upside through this deal. In such a case, Microsoft should just quit meddling in Dell's go-private transaction, or offer a loan with no objective of influence, even though I kind of doubt that would happen. If I spent a couple of billion dollars for something, I would really wish something back in exchange. For me, this deal will just be a repetition of Google's (GOOG) acquisition of Motorola Mobility.