Just some quick commentary on Dell going private and Microsoft’s participation in that process.
Let me start with something that should be obvious even if it isn’t. There are personal relationships here that exist just about nowhere else in the PC ecosystem. Where else are the leaders who created the PC industry still involved with the companies they created? Michael Dell and Bill Gates (and Steve Ballmer) are the only ones left standing. Pick your favorite company or individual and you quickly discover that they are gone, often quite literally. Are any of IBM’s leaders from the era still around? How about Compaq? Intel?But Michael Dell is still head of Dell, and Bill Gates is still Chairman of Microsoft, and Steve Ballmer (who was there almost from the beginning as well) is Microsoft’s CEO.
I don’t know Michael Dell is friends with either Gates or Ballmer, but they sure are more than typical business acquaintances. And while Dell has always been one of the PC CEOs to (privately) give Microsoft the most critical feedback, he’s also been one of the most active in supporting new Microsoft initiatives. And when he hasn’t it has largely been because they were the antithesis of Dell’s (then) business model. It isn’t that Dell hasn’t ventured “off the reservation” from time to time, but in the end of all the OEMs it remains the one most aligned with Microsoft from top to bottom.
If Michael Dell wanted to take Dell private, presumably to finish its transformation to something more aligned with the PC business of the 2010s than of the 1990s and 2000s, he would find a sympathetic ear with Bill, Steve, and Microsoft’s board. I think there is a trust level that exists here that can’t be duplicated. It isn’t that Microsoft really expects to have influence over Dell as part of its investment (not that it wouldn’t have tried to get some commitments out of it), it is that it sees Michael Dell with freedom of action as the last best shot for a revitalization and redefinition of what constitutes a successful OEM. If he succeeds it will become the model for others to follow. If he fails, well at least the OEM model won’t have gone down without a fight.
Microsoft has done things like this before. Today’s high-speed Internet, particularly cable broadband, was made possible by Microsoft investments in the late 90s. The cable industry had a plan, but not the capital for building out their broadband networks. Microsoft provided that capital. It was somewhat driven by hopes they could sell set-top box and other software to the industry, but as Bill Gates said back in August of 2001, “If I had a wand and I could ask for one more hardware technology miracle, it’d be some way of having $20-a-month broadband to homes and small businesses.” Microsoft needed ubiquitous broadband to realize its vision, and wasn’t afraid to invest to make it happen.
Today’s Internet infrastructure owes much of its existence to those investments that Microsoft made (and ultimately had to write down) in the 90s. With the investment in Dell, Microsoft must be hoping it can give another industry important to its future a chance to evolve and thrive.
Interesting write up.
Can you point me to a source about Gates investment in broadband?
Anyway, was I the only personal that think Microsoft should have bough T-Mobile US? Imagine the wonders Skype + T-Mobile data will do for them. They can skip cellular and move onto VoIP just in one acquisition.
Most of their historical broadband investments are listed here, though given the source it has the expected negative spin:
I’ve always respected the fact that Dell kept most of his MS-related criticism private, unlike say a certain Asian OEM’s CEO currently. But I can’t say that I respect his decision to take the company private. I understand MS’s reasons for supporting that. It’s a big partner after all. But still, not the honorable thing to do in my opinion.
What’s the issue with taking the company private? From my perspective “private” is the natural state, it is “public” ownership that is a bit shady. I say that because the purpose of all companies is to support their owner’s interests, but in the case of public companies that translates almost purely into “drive up the share price…NOW”. And most of the perceived abuses and ills of large corporations stem from that definition of “shareholder value”. A private company can much better reflect broader and longer term goals of its narrower set of owners. Ultimately of course a company the size of Dell will likely return to public ownership as that is the primary monetization mechanism available to the private owners.
In some cases I wouldn’t have a problem with it. But in this one I have many. Dell’s and Michael’s fortunes were largely built using shareholder money. And all of their transformation efforts over the past decade have been funded one way or another via shareholders (cash which belongs to them, stock price declines, dividends that could have been higher). Those owners have been extremely patient. More patient than Michael himself, who has been selling stock at high rates throughout the period. But now the same leadership who asked for and received that patience for a decade are seeking to divorce shareholders and capture any benefit of those efforts for themselves. They’re even talking about bringing back the company’s overseas money to help pay for it, which is something they steadfastly refused to do to benefit shareholders. Another issue I have with this one is the board’s lack of independence. The proposed valuation is low and most boards would have already insisted on a higher offer. Instead, Dell’s immediately accepted and recommended it. I don’t think rewarding failed management teams and penalizing patient investors is a particular good precedent to set. It’s also not clear to me that DELL is any more likely to make better decisions in its new form than it did in the old. In fact if it goes through, and looks like it will because shareholders now have limited alternatives, I suspect the private investors are going to be much less patient than the public ones have been. So rather than taking a longer term view, Dell may actually end up placing even more emphasis on short term hits, like cutting expenses and staff. Finally, I think it makes a future return to public markets problematic. Investors don’t forget easily.
Isn’t the only reason to go public to raise operating capital? If they can do that privately why subject yourself to the whim and fancy of Wall Street?
I certainly think that it’s a good plan for Dell to be able to go wherever Michael and the board think it should go. The last thing we need is more and more short term decision making to appease the markets especially given the worldwide financial turmoil we’re entering.
It seems your objections are merely emotional rather than it being based on economics or business strategy. Dell has returned more value to shareholders than what was initially invested. I actually wanted to say more, but it would be to broad for this post.