Dell buyout would free execs from shareholder pressure, distraction

PC maker reportedly looking into going private again with leveraged buyout

With buyout talks gaining steam, analysts say Dell Inc. could be looking to free itself from quarterly distractions and shareholder pressures - a move they said could be good for the world's No. 3 PC maker.

"I can see where it would look like an attractive option," said Dan Olds, an analyst with The Gabriel Consulting Group. "A private company doesn't have to answer to Wall Street every quarter, and can make bigger moves, faster, than a company that has to run every decision through a board of directors or major shareholders."

Dell is reportedly in the midst of preliminary talks about a leveraged buyout with private equity firms, according to The Wall Street Journal.

A leveraged buyout would take Dell, which has been public for about 25 years, back to being a private company. CEO and founder Michael Dell, who reportedly already owns 15.7%% of Dell shares, would need to put together the financials to buy back the company's stock.

Dell declined to comment on the spate of recent reports.

The company has been suffering through the struggling PC market, which has been continually hammered for the past year or more by the sluggish economy and the burgeoning tablet market.

In the fall of 2011, Dell slipped from what had once been a solid number two spot in the PC market, and was surpassed by Lenovo. Dell now still sits in third place, with 10.2% of worldwide market share. It's barely ahead of number four Acer Group, which has 9.5% of market share.

"The bottom line is that if they go private, then they would be relieved from the shareholder pressures," said Gartner analyst Mikako Kitagawa. "This would make Dell more competitive on pricing in PC market. The PC industry is a high-volume and low-profit business, which is not always suitable for Wall Street expectations."

Kitagawa added that Dell can make moves to revitalize the business without worrying about keeping share olders happy.

Patrick Moorhead, an analyst with Moor Insights & Strategy, said a return to private status could make it easier to push through mergers and acquisitions.

And Rob Enderle, an analyst with the Enderle Group, said such a move could mean a lot of changes for the way Dell handles its business. "This would be a huge change for Dell," he said. "This could improve their bottom line significantly by reducing reporting and compliance requirements, and reducing overhead. It also would allow them to operate more strategically."

One problem, though, could lie with Dell's stock price. After reports that Dell might be eyeing a leveraged buyout, the company's stock jumped $1.41, or 13 per cent, to close at $US12.28 per share on Monday.

That kind of increase could be a problem, according to Olds.

"The biggest hurdle to making a leveraged buyout happen is Dell's rising stock price," he explained. "Already, there's speculation that major shareholders won't accept a deal for anything less than $15 per share. The stock is suddenly worth so much more just because of the rumor that Dell might go private. That's a huge change based on a rumor and a signal that this deal could be much more expensive than anticipated."

But if a deal does take place, Olds doesn't think it will hurt the company, the market or users.

"...There isn't much here that will impact Dell's products or services in the short to medium term," he said. "Dell isn't going away and there's no risk to consumers looking to buy a Dell product."

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin, on Google+ or subscribe to Sharon's RSS feed. Her email address is sgaudin@computerworld.com.

See more by Sharon Gaudin on Computerworld.com.

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