Captain Rick: Dell Inc. announced that it agreed to be acquired for $24.4 billion by a purchasing group that includes company founder and CEO Michael Dell, a private equity firm Silver Lake Partners and a $2 billion loan from Microsoft. If completed, Dell would become the largest leveraged buyout since the financial crisis, and one of the ten largest LBOs of all time.
This deal has massive financing backing, which was largely enabled by Dell’s massive cash stockpile that could be used as collateral incase the stock price offer of $13.65 per share (about 25% above current price) becomes an issue due to future market changes before the deal is finalized. It also helped ‘seal the deal’ with the giant tech incumbent with loads of cash … Microsoft … with its $2 billion loan. A broader debt financing package, believed to be worth around $15 billion, was committed by BofA, Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets. It also is worth noting that this isn’t the first time Microsoft has worked with Silver Lake Partners, the private equity firm leading Dell’s acquisition. In 2011, Silver Lake sold Skype to Microsoft for $8.5 billion.
Why is Microsoft providing a $2 billion loan, instead of seeking equity?
In a statement, the software giant said: "Microsoft has provided a $2 billion loan to the group that has proposed to take Dell private. Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future. We’re in an industry that is constantly evolving. As always, we will continue to look for opportunities to support partners who are committed to innovating and driving business for their devices and services built on the Microsoft platform."
Captain Rick’s Vision … This deal has significant meaning!
As an engineer…I have followed Microsoft since its beginnings way back in 1975 when founded by Bill Gates and Paul Allen. Since then Microsoft has grown to become the world’s giant of PC operating system software. Microsoft Windows operates the majority of the worlds computers. In recent years Microsoft has come under attack form Apple, which has become the world’s mobile leader. Microsoft understands the diminishing role of the PC. Hewlett Packard, the largest producer of PCs came close to abandoning PC production a while back, but has reckoned its course since. I believe Microsoft is looking to shore up its future by supporting Dell, the world’s second largest PC manufacturer…to keep it afloat. By making loan to Dell, in stead of an equity investment, Microsoft will not offend Hewlett Packard. Microsoft’s loan to Dell will most likely guide Dell’s future PC design so that it truly supports Microsoft’s future vision of the Windows operating systems that support not only PCs, but mobile devices as well. Windows 8 is a good start, but I suspect Microsoft has much greater things in mind with proper support from PC manufacturers. I believe their goal is to not only maintain their leadership with PCs but also gain leadership in the mobile world. We can expect a war between Microsoft and Apple in the coming years. Microsoft, with its multi billions of cash is no where near the condition of accepting second place. I see lots at stake in this deal. While this is not a ‘done deal’, it looks very promising to me.