Dell Shareholders voted today to allow the firm’s founder, Michael Dell, to take the company private with help from private equity firm Silver Lake Partners in a $24.9 billion leveraged buyout.
The deal marks the culmination of a seven-month effort by Dell’s founder to take the company private, over the objections of activist Dell investor Carl Icahn, who finally ended his opposition to the plan on Monday.
Dell, who is expected to control 75% of the struggling personal-computer company once it is taken private, hopes to invest in mobile devices and data-center machines and to grow the company’s business of providing technology “solutions” to other businesses.
Dell founded the hardware maker in 1984 at the age of 19, and retired from the CEO role twenty years later. At the time, Fortune Magazine was still listing the firm among its “Most Admired Companies.” But its once-innovative model of PCs-on-demand eventually faltered along with the overall market for hardware and printers. Buffeted by international competition and the meteoric rise of Apple, Dell’s profit margins, market share, and sales growth began to decline rapidly.
Dell returned as CEO in 2007—much as Steve Jobs returned to Apple in the late-1990s—intent on steering the company away from the hardware-centric approach that helped fuel its meteoric ascent. Instead, it would focus on higher-margin businesses including providing full-service IT solutions—not unlike previous transformations of IBM and HP. Dell’s strategy was acquisition based: he used the firm’s healthy cash flow to fund $9.6 billion in purchases of companies like Perot Systems and Compellent.
The results since Dell’s return have been mixed. According to Morningstar analyst Carr Lanphier, “Dell’s servers and networking and enhanced services sales grew 35% in the past five years, offsetting a $2 billion decline in PC and mobility sales.” The strategy allowed Dell to increase its profit margins, but it has come at a price. According to Lanphier, Dell has been forced to pay top dollar for its acquisitions which “indicates desperation, weighs on returns and encourages other acquisition targets to raise their prices.”
Furthermore, Dell is wading into an increasingly competitive market. Dell’s going to have to quickly prove itself as an IT consultant and solutions provider in order to convince its existing customer base to buy more than just hardware. Dell’s success may also depend on how quickly it’s existing hardware business deteriorates. If the overall transition from PCs to smartphones, tablets, and cloud computing continues apace, Dell may quickly run out of the time and cash-flow it needs to complete its transformation.
But Michael Dell is betting that his move to take the firm private will give the company that bears his name the breathing room necessary to fully commit to his long term vision. With this deal on the books, only time will tell whether this one-time wunderkind has a few more tricks up his sleeve.