Why Michael Dell wants to buy back his own legacy

Competition has caught up with the formerly giant-killing PC maker Dell, and now its eponymous founder is trying to take it private again. Here's what he wants to blow $24bn on...

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Last Updated: 11 Jul 2013

Formative years

Dell was born in founder Michael Dell's college room at the University of Texas in the early 1980s. The fast-talking computer nerd began selling home-customised PCs to college mates that were better and cheaper than rival machines. He dropped his studies and with the princely sum of $1,000 in his pocket went into business full-time. Sales boomed, Dell floated in 1988, and by the mid-1990s the 27-year-old Dell was the youngest ever CEO of a Fortune 500 company.

Recent history

Like many a market leader, Dell got complacent. It's now third in the shrinking PC market and faces the challenge of becoming relevant again in a world of tablets and smartphones on the one hand and cloud computing on the other.

In February, it was announced that Michael Dell, backed by private equity group Silver Lake, intends to take the firm private again in a $24bn deal, one of the biggest ever LBOs. Microsoft, a major Dell customer, is putting in $2bn and Dell himself is risking some $4.5bn. But exactly how he'll improve Dell's fortunes is unclear.

Who's the boss?

Dell has been in the hot seat the whole time, barring a stint between 2004 and 2007 when he relinquished the CEO role but remained chairman. A classic geek made good, Dell turned his hobby into a firm that for several years was the world's largest PC manufacturer, and in 1997 gave one Steve Jobs (who had just returned to a struggling Apple) some advice that has come back to haunt him. The best thing Jobs could do, said Dell, was to break the company up and return the money to its investors. Now worth some $16bn, according to Forbes, he's spending a good chunk of that fortune to be rid of his own shareholders.

The secret formula?

Dell's lightbulb moment was the realisation that the PC was about to go from being a low-volume, high-margin specialist item to a high-volume, low-margin product. Thus he engineered 'mass customisation', offering 'build your own' PCs with ultra-low manufacturing costs.

The Dell model was a business-school case study for years, but the firm is paying the price for failing to spot the smartphone and tablet revolution. Even if the turnaround is successful, the only exit for such a huge deal is an IPO at a price substantially above $24bn, and that's a lot to ask.

Don't mention

Corporation tax. The LBO will enable Dell to repatriate cash to the US that's currently held offshore, without incurring anything like the usual 35% tax rate. This is because interest payments on corporate debt (and there's $9bn of that in the deal) are tax deductible. Handy.

VITAL STATISTICS
Sales $63.1bn
Net profit $3.5bn
Employees 110,000
Full-year 2012 figures

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