At USD 24.4 billion, Micheal Dell's decision to take Dell Computers private is the biggest leverage buyout since the financial crisis. But rating agencies like S&P, Moody's and Fitch are not impressed, reports Kritika Saxena of CNBC-TV18.
Michael Dell has big plans for the world's number-3 computer maker -- he wants Dell to focus on more acquisitions, and expand into areas like software and corporate computing services and he wants to do this without shareholders breathing down his neck. But some shareholders are not sold on the USD 13 and 65 cents per share offer Dell and Private Equity firm Silver Lake are offering.
Pazena Investment Management, for instance, which holds over 14 million shares in Dell, plans to vote with a resounding ‘No’ on the deal. It says the price should be higher than USD 20 a share. Shareholders aside, even ratings agencies have taken a negative view on the deal.
Fitch has cut Dell's long term issuer default rating five steps to "double B plus"... Moody's has downgraded its long term rating on Dell by two notches to "Baa1"... and S&P has placed Dell on watch for a possible downgrade. However, not everyone is taking such a dim view of the privatisation plan.
Brian White, analyst, Topeka Capital, says that If you look at their enterprise business, the margins are much higher, the growth rate has been much better but the PC business skews the results and I think under the public eye as a publicly traded company, it is very difficult to make the hard decisions to move more into the enterprise market which is what they want to do. So I think the price is right.
The move certainly marks the end of an era for the world's third-largest computer maker. But some experts say Dell's move may well bear rich dividend, after all, Seagate emerged stronger after a USD 20 billion privatisation deal in 2000. Also, with tablets taking the technology world by storm, and stiff competition from Apple, Dell has been hunting for new markets and this may be just what the doctor ordered.
Ray Wang, principal analyst, Constellation Research, says that well this is a bold move by Dell. We have been seeing is contraction in the PC market just at the same time as Dell is trying to make these changes. So the move to go private buys Dell a considerable amount to time so that it can start making those investments, it can actually start working in terms of making those investments in I'd say more secret, so that they can plan for the long term as opposed to meeting shareholder's demands in the short term.
Now Microsoft has played its part in the deal by sending a USD 2 million loan and the second is Microsoft needs to move out pure software space and enter the hardware space to a network of partners. Now emerging geographies like India and Indonesia have been seeing strong growth in the software, services and the enterprise segment and a privatised Dell may look to increase its focus in these regions. However, Michael Dell & SilverLake have a 45-day go-shop period in the purchase agreement to see if a better deal could be struck with someone else and that means the outcome of the deal is not cast in stone just yet.