Dell is in “buyout talks” with private investors, according to a report published by Bloomberg Monday that sent the struggling computer maker’s shares surging.
The Bloomberg report, citing unnamed sources, said Dell was in “preliminary” discussions with “at least two” private equity firms. Reporters Serena Saitto and Jeffrey McCracken theorized that going private could help Dell “accelerate efforts to revive growth and cope with competition without quarter-by-quarter scrutiny from public shareholders.”
A separate Bloomberg report noted that Dell CEO Michael Dell told analysts and investors back in 2010 that he had considered taking the company private. Dell did not immediately respond to a request for comment.
Patrick Moorhead of Moor Insights & Strategy, who didn’t have special knowledge of Dell’s purported interest in going private, said in recent quarters the company’s PC business had been in decline, putting pressure on the company’s stock price. Though Dell had been growing its enterprise IT and services business, it hasn’t been enough to offset the company’s struggles in other areas, the analyst said.
“Going private could take away the pressure and get Dell focused on more long-term goals. But the downside is that he cost of capital is more expensive than when you’re public and you miss out on all the free promotion of being a public company,” Moorhead said.
Over the last several years, Dell’s acquisitions of such companies as EqualLogic, Perot Systems, Force10, and Quest have put in a position to compete with the likes of IBM, Hewlett-Packard, and Cisco for big enterprise IT contracts tying in a portfolio of servers, storage and networking equipment, software, and services.
There have been a few examples of large publicly held tech firms going private in recent years, particularly during the so-called “mega-buyout” period of the mid-2000s, but none involving a company as large as Dell, the world’s third-largest computer maker, Moorhead said.
CDW, an IT product and services provider, was acquired in 2007 by private equity firm Madison Dearborn Partners for more than $7 billion. A buyout group led by Blackstone Group bought Freescale Semiconductor in 2005, also for billions of dollars, but the chip maker went public again in 2011.
Meanwhile, Moorhead noted that rumors about Best Buy going private have been kicked around in the past, and Advanced Micro Deviceswhere the analyst was previously employed as a top executivespun off its manufacturing assets to Abu Dhabi-based ATIC in 2009 to create the privately held semiconductor foundry Globalfoundries.
By Damon Poeter, PCMag