New Chapter, Fewer Players
For his part, Michael Dell said that “this transaction will open an exciting new chapter for Dell, our customers and team members,” while continuing “the execution of our long-term strategy and focus on delivering best-in-class solution.” Dell’s shareholders will not participate in this new endeavor because Dell, as a private entity, will be moving forward on its own.
Even Microsoft Corporation (NASDAQ:MSFT) is putting skin in the game; albeit as $2 billion in debt, not equity. The company can certainly afford it. They had $68.3 in cash and short-term securities at year end, the company generates about $2 billion in cash each month.
Why is Microsoft willing to make this committment? Some industry experts believe the company is using the loan as leverage to prevent Dell from further using Linux-based software (an open-source operating system that competes with Microsoft’s Windows) in its enterprise servers, the high-end computers it sells to businesses.
Microsoft is increasingly becoming an enterprise-focused company, and that is where the company is betting on its growth. For the first time, the company’s Server and Tools division generated more than its Windows division in the company’s most recently ended fiscal year end ($18.7 billion in revenue for S&T compared to $18.4 billion for Windows). Server and Tools sells server versions of Windows, database software, Azure cloud services, software-development tools, system-management products and enterprise services.
If Microsoft can persuade Dell to include enterprise services like its data center, IT services, and customer relationship management software in Dell’s hardware, Microsoft’s $2 billion investment could become an interesting move. Suddenly, the investment gives Microsoft an increased presence in companies that are quickly shifting to adopt cloud services like.
Meanwhile, Dell’s current investors get a modest premium over market value, with no idea what the company is going to do in the next three to five years, and no skin in the upside, if any. Somehow, that doesn’t seem fair. “Dell 3.0” will be up to Michael Dell et al, and they will be the only ones who benefit from it.
So much for maximizing current shareholder value. Institutional investors who currently hold the company’s stock are starting to band together and insist on a higher premium. That may provide salvation for the individual investors who still believed in Michael Dell.
The article What the Dell is Going on? originally appeared on Fool.com and is written by Mark Walker.
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