Microsoft's a player in Dell private equity play: Here's why

Microsoft's a player in Dell private equity play: Here's why

Summary: Why would Microsoft invest a few billion of dollars into Dell's buyout? Here are a few reasons why locking up a partner may make sense.

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Microsoft is reportedly in talks to help finance a buyout of Dell in a move that would take the PC maker private.

According to the Wall Street Journal and CNBC, Microsoft would invest a "couple of billion dollars" or $1 billion to $3 billion in Dell. Microsoft wouldn't comment on the reports. Dell's buyout would be led by Silver Lake Partners. 

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Dell's move to go private would make a lot of sense. It has to change its model from one centered around PCs to one focused on software and services. Such a transition is best conducted in private without quarterly scrutiny from Wall Street.

More: Dell hires Evercore to find higher bids over buyout plans | Dell going private, a good thing for all | Dell buyout pegged at $13-14 a share: reports

The reports on the Microsoft financing noted that it's unclear what the software giant would want with Dell. Given that void, let's connect a few dots. Here are a few reasons why Microsoft may throw a few billion dollars at Dell.

  1. Microsoft could get access to manufacturing assets. Microsoft is a hardware maker, but comes from a software background. Dell clearly has the hardware manufacturing gig down and could be a nice contract partner for Microsoft.
  2. The software maker keeps a key partner in the Windows fold. Dell has been a key PC maker for years and most of those devices were powered by Windows. If Dell went private perhaps its loyalty to Microsoft wanes.
  3. Maybe there's a smartphone play. Dell hasn't been a mobility juggernaut by any stretch. If Microsoft is an investor any mobile device would likely be powered by Windows Phone 8.
  4. Dell is a big enterprise partner. For all the talk about Microsoft's Windows 8 issues, the company's enterprise business is humming. Dell's acquisition strategy has been completely focused on the enterprise. There has to be some partnership potential there somewhere.
  5. Microsoft just has too much cash. The company has lost billions with Bing, search and its Google chase. Microsoft's acquisition history is so-so at best. It's possible that Microsoft will invest because it simply has pockets with giant holes in them.
  6. Dell may be a good investment. Silver Lake Partners has a good track record and Dell will eventually return to the public markets. It's possible Microsoft is just making a good trade. After throwing billions at acquisitions that didn't quite work---aQuantive anyone?---Microsoft has to get a win sometime.

Topics: Data Centers, Dell, Enterprise Software, Hardware, Tablets, PCs

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23 comments
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  • They won with Facebook and Bungie

    to name just a couple.
    William Farrel
  • Should be good for the public - NOT

    expect walls to go up and stop dell from making PCs for any other OS
    deaf_e_kate
    • Why?

      Isn't profit, profit? If they quit selling Linux Servers, they may lose 10% of their customer base, but at the same time they'd lose that 10% of their profit.

      Why would they do that?
      William Farrel
      • If MS is a major investor...

        ...then it might be unhappy if Dell sold anything but Windows preloads and unhappy major investors can make life difficult for management (the CEO might even lose his job).

        A lot depends on how big of a share MS has.
        John L. Ries
    • This is the best thing for Dell and will make a better company overall

      Mainly becasue they can avoid the lionshare of oppressive Governement regulations.
      ammohunt
  • Good Luck MS

    Since too many outsourced to Hardware Manufacturing to China and Software to India because of greed, the hardware manufacturing is almost gone. That will take a long time for their living standards to catchup and this would be about at least 5-10years, since their cost is only 1/10 or more to manufacture in China. Hardware intellectual properties will soon disappear because no on will care if copied or IP stolen hardware is as good as legal name brand. Therefore, it's only a matter of time for software, and we all know that India is known for software outsource heaven. Since innovations are decreasing (especially MS) besides internal conflicts with dead weight dinosaurs, it's only a matter of time if the titanic cannot be steered away from the iceberg(s).
    anonymous99
    • Greed? Try expensive labor derived from primarily unions

      Labor is the most expensive part of maunfacturing. Labor unions have made it near impossible to even come close to competing with wages overseas. That and unneeded government regulation.
      ammohunt
      • Aren't you forgetting something?

        Namely, cost of living? A factory worker here being paid $1 per hour would quickly starve. There is no workforce here willing to work for the wages workers in other countries can accept. China, too, will become too expensive some day and industry will find another developing slavepit I mean country to work for a pittance.
        jvitous
        • You're forgetting something...

          It's possible that the standard of living for people who do this work in America is too high compared to the job requirements. Economically speaking, the outsourcing is a way to get the risk/reward equation back into equilibrium that unions have/will thrown out of balance. I'm not making the moral call that unions are to blame - but obviously the pay scale for laborers is out of line with the work they're doing or there wouldn't exist so many easy ways to re-balance the equation via lower wage labor elsewhere. And while there is a definite component of 'cost of living' currency conversions account for much of that (IMHO). If you want to argue that China is a currency manipulator who is breaking the equilibrium model - I'm right there with you.
          Fark
      • What labor unions?

        I think they have all been effectively broken. And likewise, what government regulations? You guys live in a fantasy world. I know, they explained it all on Fox news. You probably even went to college (heavily subsidized by the government you want to shrink.)

        Enjoy it until your kids have to go to work for $1 per hour since "the pay scale for laborers is out of line with the work they're doing". By the way, to keep those wages at that level, we might need a repressive police state, like our "socialist" buddies, "communist" China.
        drbenway
  • Nokia Part Deux

    Haven't we seen this before? MS + NOKIA. That turned out great.
    MediaCritiquerDotCom
    • Actually it is turning out to be a very good deal

      The Lumia 920 is the #4 selling smartphone for ATT, Nokia numbers are starting to turn around. Verizon is chomping at the bit to get their version due out is a couple of weeks. MS sucks at marketing their products and building brand loyalty. Microsoft does the back end work and Nokia, Dell and Facebook do the front end business to customer relationships. I like that business model much better than the Google/Apple model of being all things to all people. Do what you do and do it well. The more you diversify from your core business the more quality suffers.
      dbiz2
      • yep

        "The more you diversify from your core business the more quality suffers."

        You got that right. Bing, Live, phones, etc. All diversions from their core business.
        chadpengar
      • Who cares about #4?

        #1 by far is the iPhone. #2 is probably the Galaxy S3.... Jusdging by dwindling WP marketshare, I'd say the rest of the USA agrees on what a Turd it is.

        Look at Verizon - almost 2/3's of their LTE smartphones are iPhones:
        http://gigaom.com/2013/01/22/verizon-sees-big-q4-influx-of-4g-activations-including-3-1m-lte-iphones/

        Where is WP supposed to fit into that? Hint: Nowhere.
        itguy10
        • Windows Phone Marketshare is growing

          It was actually the largest grower by percentage last quarter. Just a tip, but anytime you feel compelled to use the word "turd" it really only shows your ignorance.
          dbiz2
          • Re: It was actually the largest grower by percentage last quarter.

            But not by percentage points. There are rounding errors in the measurement of Android's market share that are larger than the entire market share of Windows Phone.
            ldo17
      • Nobody remembers #4

        It's #4 right behind the iPhone (makority of smartphone sales) and 2 other Android phones.

        WP is a joke.
        itguy10
  • Does Dell make anything anymore?

    It seems that I keep reading about another Dell factory closing (after exhausting the tax benefits usually) here in the US. Does Dell make anything itself any more or does it contract it all out to others to build for them? Dell seems to be a box shifter more than anything else.
    chadpengar
  • Search Business

    "Microsoft just has too much cash. The company has lost billions with Bing, search and its Google chase. Microsoft's acquisition history is so-so at best. It's possible that Microsoft will invest because it simply has pockets with giant holes in them."

    - Well I don't necessary agree that MS 'lost' billions with Bing and search, Its a long term investment and Microsoft's other platforms has benefited from it. Bing is better that Google in those countries where they have fully rolled it out, and with Nokia's mapping platform Bing is primed for success and profit in the near future.
    Owlll1net
  • Dell?

    Why not "shut it down and give the money back to the shareholders."
    Smalahove