Dell's gambit to go private is working. Should Microsoft follow?

No one was sure how Michael Dell's risky move would work out. Turns out, it's working out pretty well.

Image credit: REUTERS/B Mathur

Michael Dell took a massive chance last year to take his struggling company private and spent eight long months fighting Carl Icahn, who tried mightily to sabotage his plans. One year later, it seems Michael was right and Carl was wrong.

A year after the $24.9 billion leveraged buyout that took Dell off the NASDAQ stock exchange, the company is doing very well. Bloomberg reports that Michael and private equity firm Silver Lake Management LLC have made a paper gain of at least 90% on their investment.

Michael Dell invested $4.2 billion of his own money into the takeover process, with Silver Lake adding another $1.4 billion and the rest financed by debt and cash from the company, including a $2 billion loan from Microsoft.

One year later, Dell's equity value is estimated to be at least $10.8 billion, thanks to a surge in cash and decline in debt. Cash flow is projected to rise above $3.5 billion for fiscal 2015, which ends in January. That’s up from $3 billion at the time of the buyout, according to Bloomberg. The company has used much of that cash to pare down its debt from $18 billion to $15 billion.

Dell’s also picking up some business. Its share of the PC market has risen from 11.9% around the time it went private to 13.3%, and that's with the PC market still declining, according to IDC.

No doubt Michael is feeling like he has a startup again, free of the nuisance of Wall Street analysts and investors looking over his shoulder. If you've never been on an earnings call, a few things are readily apparent: the executives really don't like them, and the analysts don't care a whit about corporate strategy as long as it has them on a growth path and maximizing return. Michael had a technological vision for his company; Wall Street just wanted a growth plan. There is a difference.

In announcing his plans to take the firm private, Michael articulated the complaint of virtually every single public company – that it's impossible to execute a long-term plan when you have Wall Street and investors pestering you at every turn for growth plans and second-guessing your every move.

Carl Icahn fought this move tooth and nail, trying to push the price higher and at one point threatening a lawsuit. Think he'll admit he was wrong? Of course not. Because it doesn't matter that Dell can make long-term plans in peace and operate without having to answer to analysts who only know its business peripherally. He'll make some excuse about maximizing shareholder return. Translation: his return.

Personally, I'm all for more companies going private. Maybe Microsoft should be next, so Satya can turn that mess around in peace and quiet.


Copyright © 2014 IDG Communications, Inc.

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