|94,978 views Dell Officially Goes Private: Inside The Nastiest Tech Buyout Ever This story appears in the November 18, 2013 issue of Forbes. 15 comments, 13 called-out Comment Now Follow Comments Eight months is a long time to stay mum, especially for a tech industry wunderkind, as Michael Dell was, and one of the world’s richest men, as Michael Dell is, while enduring daily bombs from Carl Icahn about his leadership and ethics. (“All would be swell at Dell if Michael and the board bid farewell,” Icahn tweeted at one point.) So as he strides in front of 350 employees in the glass-enclosed conference room of Dell’s Silicon Valley division a few weeks ago, with celebratory gourmet cupcakes frosted with the company’s blue logo nearby, you can literally feel a weight coming off his chest. “It’s great to be here and to not have to introduce Carl Icahn to you,” says Dell, the parry prompting laughter and cheers. “We’re the largest company in terms of revenue to go from public to private. In another week or two we’ll be the world’s largest startup.” It’s not that Dell hasn’t been talking. Ever since February, when he announced his plan to take his eponymous company private, armed with his own fortune and billions from the private equity firm Silver Lake Partners, he’s traveled the globe–including three trips to China–privately reassuring everyone who would listen that Dell was business as usual. But at the advice of counsel he kept a tight lid on talking about the buyout. Now, having closed a $25 billion deal to take the company he founded in his dorm room private, the shackles are off. He can say what he wants–and do what he wants, too. After mixing in his 16% ownership, valued at more than $3 billion, and another $750 million in cash, with $19.4 billion from Silver Lake and a consortium of lenders, he now controls a 75% stake in the Round Rock, Tex. company. The only investor conversation he has to have, he says, is with “self.” So what is Dell now saying to himself, as well as customers, partners and employees? Get 2 Free Issues of Forbes Current Issue Inside the Magazine Get 2 Free Issues of Forbes A Private Conversation with Michael Dell, The Man In The Arena Connie Guglielmo Connie Guglielmo Forbes Staff Is Michael Dell Still The Right Man For The Job? Connie Guglielmo Connie Guglielmo Forbes Staff The Nations 10 Richest In Tech: Zuckerberg And Ballmer Climb, Gates Still Top Ryan Mac Ryan Mac Forbes Staff Carl Icahn Unleashed: Wall Streets Richest Man Is On The Attack -- Just Ask Michael Dell Steven Bertoni Steven Bertoni Forbes Staff Most critically, the world’s third-largest personal computer maker has no plans to abandon the PC, despite that product line’s sinking fortunes. In fact, he plans to sell way more of them and, if the recent past is any guide, he may just sell them at a loss. Selling commodity boxes on the cheap allows him to get Dell in the door to upsell customers on lucrative software and services. Dell has driven down the prices of PCs many times before. But a PC maker selling PCs as a loss leader? That’s the kind of thing you get to do when you take a company private. “We’ve always viewed [PCs] as a business that’s got a life cycle to it. Growth is in new areas, and it’s a business you’ve got to manage very efficiently from a cost structure. It’s still a great way to get into new customers,” says Dell. The world got a taste of this land grab in Dell’s last quarter as a public company. Net income dropped 72% from a year earlier–but Dell’s PC share ticked up one percentage point, its largest move in almost three years. There’s a long way to go to rebalance the business. After four years of work and $13 billion in services, software and other acquisitions, the firm still gets more than 60% of revenue from PCs. Dell’s market share in services and software stands at less than 1%, but these are the only categories making money and growing. Enterprise solutions, software and services revenue was up 9% in the latest quarter, and services comprised 100% of total operating profit. And in addition to battling traditional rivals like Hewlett-Packard and IBM, the company also has to worry about IT newcomers such as Amazon and Rackspace, which are wooing businesses with cloud-based services. Yet some of the smartest minds on Wall Street, including Icahn, are convinced Michael Dell and Silver Lake got a steal at $25 billion, putting 20% down. “I agreed with the shareholders that he was not paying a fair price for Dell and that they were getting hosed,” Icahn says. Hosed may be too a strong a word. No one else but Dell wanted the company that badly, not even Icahn, who had a “win win,” walking away from eight months of grandstanding with a stake worth $2.2 billion, and after squeezing out another $500 million for shareholders. The growth-challenged company will be buried under just less than $20 billion in debt in an industry in secular decline. But Icahn knows what Dell does: that without dividends and buybacks, he should have enough cash flow to cover the interest payments. And without the public markets to worry about he has the flexibility to pull off the rebalancing act. Silver Lake, which in its last three tech deals reportedly made 213% on Skype, 730% on disk drive maker Seagate Technology and 430% on chipmaker Avago Technologies, can do the math, as well. Conservative estimates peg the potential returns on this leveraged buyout at 11% a year, based on the most recent dismal earnings. And if cash flow growth comes back–or the current results are being, shall we say, sandbagged a bit? Then Dell will neatly bookend the founding legend of his University of Texas dorm room. Michael Dell addresses employees in Silicon Valley after winning his bid to take his namesake company private. (Photo credit: Christopher Peacock) “Michael has extremely exciting software assets that haven’t been valued by Wall Street because they’re surrounded by the legacy PC business,” says Salesforce CEO Marc Benioff. “For Michael to realize the value of these new assets–he has this incredible security asset as well–Michael needs to take Dell private and restructure the company.” Before diving into the challenges ahead, though, there’s a question a lot of people have pondered that needs asking: Why him? Dell had more than five years to lead a turnaround and failed. Shareholders have been treated to a negative 43% total return since he reclaimed the CEO job. Why not just walk away with his $16 billion in net worth ($12 billion of which is outside of Dell) and establish a new legacy? “I will care about the company after I’m dead,” says Dell. “I love this stuff. It’s fun for me. I couldn’t be more thrilled to have control over my own destiny in a way that is not possible as a public company.” Brilliance and Bravado Before Mark Zuckerberg and Kevin Systrom, Drew Houston and David Karp, Michael Dell defined the myth of the American tech prodigy. Only Bill Gates and the Apple founders could come close. Dell was 23 years old at his IPO in 1988, five years younger than Zuckerberg at the same milestone. He was 29 when his company hit $1 billion in revenue and 31 when it hit $5 billion. The company’s first president, Lee Walker, remembers the first time Dell came to see him in 1986. “He eats most of my sandwich and all of my soup, and in between slurps asks me if I can be president of his company. … He had no money, no access to money.” Yet Walker eventually came on because he could see that Dell possessed both brilliance and the bravado to think he could take on HP and IBM as a college freshman simply because he was willing to assemble PCs himself and sell them directly over the phone. 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ADVERTISER VIDEO Post Your Comment Please log in or sign up to comment. Enter Your Comment Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. Youll be notified if your comment is called out. Comments Called-Out Expand All Comments Follow Comments Rupak Nath Rupak Nath 3 days ago Yes great article Called-out comment Reply aditya1 aditya1 3 days ago Good that he’s in control now.. just wish he will be able to ru the company as he wishes to without any inteference from his partners”silverlake” .. would be interesting to see how he turns it around .. All the best Called-out comment Reply YESENIA GONZALEZ YESENIA GONZALEZ 2 days ago Mr. Dell has guts at a young age! “… Dell came to see him in 1986. “He eats most of my sandwich and all of my soup, and in between slurps asks me if I can be president of his company. … He had no money, no access to money.” Yet Walker eventually came on because he could see that Dell possessed both brilliance and the bravado to think he could take on HP and IBM as a college freshman simply because he was willing to assemble PCs himself and sell them directly over the phone.” Called-out comment Reply Dale Durbin Dale Durbin 2 days ago I hope Michael Dell can get back to his roots, engineering. Dell products have been slow to improve and incorporate new technology over the past five years. Dell use to be first to market now they are close to last. Going private not going to fix this problem as Acer, Asus and others feed on Dell’s customer base. Called-out comment Reply Hawkeye Hawkeye 2 days ago It’s very ironic: Michael Dell is hoping to pull a “Steve Jobs” with his return to the company he founded. And his comeback plan is to become more like Apple: Vertical integration of software and hardware. And so far he’s taking his own advise to Steve Jobs: Return the money to investors. One has to wonder if he’ll act out the other half of that advice: Close the doors and turn out the lights? Called-out comment Reply Dale Durbin Dale Durbin 2 days ago Dell was never a visionary like Jobs, just a good old PC engineering geek. When he returned as CEO in 2007, not much changed as cost reduction and investor maximization continued as the highest priority at the expense of product innovation and customer satisfaction. The geek became the baron. Called-out comment Reply Sherry Blevins Sherry Blevins 2 days ago What is it with the #DellVenue pro 8, I ordered mine on the release date and now tell me it could be after Nov 8 till it ships. It says it ships on Nov 1 on the website. I wondering if these things are really ready to ship! That’s not right if someone orders today and gets theirs before the ones who preordered it on 10/18, and forget customer service they don’t know anymore than we do. #Dell Hope their customer service returns to the level it once was! Reply jonjon jonjon 2 days ago wish him the best….great article Connie Guglielmo Called-out comment Reply Bryon McCane II Bryon McCane II 2 days ago This guy is either the most greedy person ever or he doesn’t care about money at all. Called-out comment Reply Mark Rogowsky Mark Rogowsky, Contributor 2 days ago This is a great story, but it leaves one wondering why we should be rooting for Dell. I have a very, very tough time believing the thesis, “To do hard things, one must go private, denying the shareholders any of the potential upside.” Basically, the owners of Dell not named Dell were told, “This is the deal, take it or else, we’re about to make the company worth more money. Goodbye.” The idea this is somehow an unqualified good remains questionable at best. Michael Dell is one of the great entrepreneurs of our time and is a tremendous success story. There is not a shred of doubt of that. The no-option LBO is one of the more hideous elements of American business, however. Called-out comment Reply Kevin T Kevin T 1 day ago A man gotta do what he gotta do…but what’s good up your sleeve that will turn millions to abandon their tablets to buy your PC? enough said already, show some products! 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PS4: Which Is The Fairest Console Of Them All? +21,008 views + show more (contributor_data.name)!?html Connie Guglielmo Forbes Staff Follow (460) + show more Ive spent almost my entire career as a journalist covering tech in and around Silicon Valley, meeting entrepreneurs, executives and engineers, watching companies rise and fall (or in the case of Apple, rise, fall and rise again) and attending confabs and conferences. Before joining Forbes in February 2012, I had a very brief stint in corporate communications at HP (on purpose) and worked for more than six years on the tech team at Bloomberg News, where I dived into the financial side of tech. Before that, I was Silicon Valley bureau chief for Interactive Week, a contributor to Wired and Upside, and a reporter and news editor for MacWeek. The first computer game I ever played was Zork, my collection of now-vintage tech T-shirts includes a tie-dye BMUG classic and a HyperCard shirt featuring a dog and fire hydrant. When I can work at home, I settle into the black Herman Miller Aeron chair that I picked up when NeXT closed its doors. You can email me at cguglielmo@forbes. Connie Guglielmo’s Popular Posts Untold Stories About Steve Jobs: Friends and Colleagues Share Their Memories 482,921 views Apple Readying Products That Will Blow Your Mind 290,795 views Apple Unveils Faster, Thinner iPhone 5 With 4-Inch Retina Display, LTE Support (Live Blog) 180,714 views Apple Loop: Cook Unveils Mission Statement, iOS 7 Gets Colorful, New iPhone In The Fall 138,684 views Apple Unveils iOS 7, iTunes Radio At WWDC Developer Fest 132,799 views More from Connie Guglielmo Subscribe to Forbes Get 2 Free Issues Subscribe to Forbes Submit SUBSCRIPTIONS Subscribe To Newsletter Subscribe To Magazine Subscriber Customer Service
Posted on: Fri, 01 Nov 2013 17:26:20 +0000
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