Why Dell Inc. (DELL) Went Private, and What It Means

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Dell Inc. (NASDAQ:DELL) officially announced its plans to go private this week, finally setting the rumors to rest. While the news comes as no surprise to frequent Foolish readers, it is still a monumental event for the tech world. After all, Dell was one of the hottest stocks to have during the ’90s, and eight years ago or so, no one could have predicted that the “Dude, you’re getting a Dell” guy would ever go away. Should this news be seen as an omen for the rest of the computer industry, or is it just a move befitting founder Michael Dell’s private personality?

Dell (DELL)The buyout details
The Dell deal has become the largest buyout deal since the 2008 U.S. financial crisis. As Motley Fool’s Investor Beat detailed the other day, it is an intricately layered beast. In total, the whole thing cost approximately $24.5 billion, and included money from investment banks, private equity firms, and even a $2 billion loan from peer Microsoft Corporation (NASDAQ:MSFT) .

The why behind it
The plainest way to rationalize the Dell buyout is that the company is gradually transitioning from being a computer company to a distributor of enterprise systems and services. Of course, such a drastic makeover would make the company unrecognizable to its investors, which could cause shareholder morale to sour and send an already low stock on an even longer drop. In going private now, Dell can change itself however it sees fit, and use the buyout money as a more dependable buffer.

It’s not that Michael Dell has suddenly developed a huge passion for servers. Several macro-economic factors are in play here, too, like the decay of the PC industry. Even Microsoft has been struggling with lackluster sales of Windows 8. Its loan to Dell may be an effort of good faith, to support the company as it changes, and perhaps benefit from its potential success. Sometimes the situation calls to either adapt or get out of the way, and Dell seems to be making a move for the former, just not under the watchful eyes of Wall Street.

Wall Street’s reaction
One of its former powerhouses may be dropping off the radar, but that doesn’t mean the market is grieving. As fellow Fool contributor Jeremy Bowman explained, the Dow Jones Industrial Average bounced back a full 99 points on the day of the Dell announcement, with the more tech-centric Nasdaq rising 1.3%. Dell’s shares also enjoyed a 1% gain that same day.

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