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Dell is holding a shareholder vote on Thursday and the showdown is investor Carl Icahn‘s proposal vs. the go-private plans of Michael Dell and Silver Lake Partners. While the play-by-play and personalities are fun to watch corporate tech buyers need to pay attention because they ultimately will have to make a call on whether Dell will remain as a go-to supplier.
Of course, Dell could put off Thursday’s shareholder vote to allow Michael Dell and Silver Lake to raise their bid if needed. Icahn last week sweetened his bid for Dell to $14 a share plus warrants that could boost the value of the deal. Michael Dell and Silver Lake are offering $13.65 in cash for each share.
The financial showdown is notable since Dell’s business is stumbling, interest rates are rising and many of the assumptions behind buying the company now seem flawed. It’s quite possible that any buyer for Dell may have a case of remorse in the months to come. Enterprise buyers don’t have to worry about the soap opera, but do have to note the moving parts. After all, no one wants to risk a big purchase amid a billion-dollar pissing match you’re not involved in.
Icahn sweetens bid for Dell: Will it sway shareholders? | Icahn promising new, higher Dell bid to be unveiled on Friday | ISS endorses Dell, Silver Lake buyout plan for $24.4B | Dell CEO reportedly won’t raise offer to take PC company private | Dell to investors: Icahn’s deal dicey, business stinks | Why Icahn’s Dell plan could be a FUD nightmare.
Here’s a look at the scenarios and moving parts that will affect enterprise buyers:
Icahn wins. Icahn has stated that Dell can be run better and that he’d toss management with new blood. The investor upped his bid enough to sway at least one large shareholder, T. Rowe Price. If others shareholders follow Icahn, Dell would postpone its shareholder meeting for Michael Dell and Silver Lake to up their offer for the company.
Michael Dell and his partners may not raise their $13.65 a share in cash bid. Why? Interest rates have spiked and PC sales have tanked. Borrowing money to revamp a company is simply harder than it was just a few months ago. Meanwhile, Dell’s business, which relies on PCs, has tanked. Should Icahn win, enterprise customers have to watch closely.
Michael Dell and Silver Lake win. Should Michael Dell and Silver Lake take Dell private enterprise buyers can breathe a sigh of relief—for a few months. Dell needs to be revamped and the sooner it can minimize PCs the faster it can focus on higher growth areas and ultimately go public again. Dell is also likely to cut costs and your friendly neighborhood support people and account reps could disappear.
Dell doesn’t go private at all. This scenario seems to be a bit of a reach, but the PC sales declines are jarring. If Dell doesn’t go private its stock will crater. Dell will have to cut costs, rationalize operations and revamp. That move will hamper turnaround plans to some degree. At the very least, Dell will lack the resources to aggressively acquire the parts it needs to focus on software and services.
Can Dell innovate? In all the aforementioned scenarios it’s unclear whether Dell can truly be innovative enough to leap frog the competition. For years, Dell’s primary innovation has been the supply chain and managing cash better. HP and Lenovo have caught on to that model and then some. Meanwhile, Dell’s R&D spending as a percentage of revenue has historically been 2 percent or so. A company can’t credibly talk about innovation until it actually spends some money on R&D.
Leverage. When the dealing is done, it’ll be worth watching the debt load for Dell. If Icahn wins, Dell will be heavily leveraged. If Silver Lake and Michael Dell win there will also be leverage. With interest rates rising, debt isn’t the slam dunk it was just a few months ago. Dell’s entire turnaround plan depends on whether it has the resources to invest in new parts of the business.
It’ll be a buyers market for gear. No matter what happens Dell will have to battle the fear, uncertainty and doubt projected by rivals. Share your thoughts in the comments below and don’t forget to like this post.
Source: Associated Press