I think its too early to say Dell has been a posterboy for why going private makes sense, the company was saddled with massive amounts of debt due to the trasition, and are currently struggling to keep above water.
The situation has a lot in common with why leveraged buyouts almost always end in disaster, dispite the hype surrounding them when they are first annouced.
If they remain as successful as they are now, going private will never be an option because doing so would cause complete erosion of trust by shareholders, customers, public, and world. They will become opaque entities, and it will become very difficult for them to operate globally.
Putting that problem aside, at their current valuation, a group of investors will need to raise a huge amount of capital for relatively small return.
Dell took it private because the market effectively wrote off Dell and it wasn't trading much more above the book value. So raising capital to cover the amount was not difficult because the company was still reasonably profitable with good cash flow.
So bogus. There would be no lawsuit, at least no sane one, if a vision was clearly communicated. As for going private, what does Dell now have that puts them in any position for long term upside? If they go private the company will be chopped up. Given all the acquisitions that's for the best.
This is not surprising. Michael Dell spent billions to take the company private because he believed the company was undervalued and under-performing[0], and that he knew how to save it, not because he was content with leaving it the way it was.
That process necessarily involves personnel changes - if anything, I'm surprised we didn't see these sooner.
The real question will be who they're cutting (and more importantly, who they'll be replaced with, or if those positions will be replaced at all).
[0] The other reason public companies go private is to liquidate, but that's clearly not his goal.
Despite the uncorrelated statistics, consider the premise "going public kills innovation."
The company's focus inherently shifts from providing value to pleasing stock holders. Its litmus of success is no longer value-based metrics, but rather marginal bumps in stock price. This inevitably results in a mindset that prioritizes short-term gains over long-term stability.
Perhaps this is why Dell is considering becoming private again.
"So what keeps a company, when winds shift, from being nimble enough to shift with them?"
Answering to Wall Street. Going private would give Dell tremendous flexibility without the risk of shareholder activism in the form of class action lawsuits. It offers opportunities to pursue long term strategies without worrying about quarterly dividends and pundits' predictions.
If Dell can go private, it is a sign that someone sees a long term upside or profit from liquidation. The former seems far more likely than the latter.
I can certainly imagine how it might not end well for a company that gets taken private, but I also think that trying to innovate and grow in such a competitive environment would be even harder if you have to worry about shareholders breathing down your neck.
Probably worth reading this article about Tesla maybe going private and Dell becoming public again. Personally I like public companies that allows public scrutiny and makes it possible for everyone to buy a piece of the company. There is so much private investing now though that I dont think its a big difference.
> Yet over time, Dell came to the realization that servicing all of its debt, making strategic acquisitions and boosting shareholder returns was more challenging for a company that couldn’t easily tap the public markets.
Apparently, about 80% of Dell revenue comes from product(PCs, peripherals, servers, and some consumer electronics.) The remaining 20% or so comes from services (including software.)
What I was trying to say is that I don't really see what incentive Dell Inc. would have to go private.
I don't see why Micheal Dell would assume so much risk, and I don't really see the immediate benefit for any party (Micheal, the board, shareholders, PE firms) to privatize at the moment.
They should focus on their transition instead of burning up so much cash on hand and assuming a lot of risk.
I think the best bet would be to stay public and try to scale their enterprise segment through venture investment.
> It's a sad thing because it's damaging serious businesses like telcos,banks,insurance companies.
Doesn't matter if it's damaging to the business in the long run, it makes their quarterly results look great, and that's all Wall Street cares about. Headcount is down, profit is up.
Who cares if their business logic will be a hot mess in 2 years because everyone competent got fired? Everyone high up will have already collected their performance bonus.
Far too many companies are afraid to take long term decisions which are better for the company but worse in the short term. This was cited as one of the primary reasons for Dell to go private again:
"My partners at Silver Lake Management and I successfully took Dell private a year ago in the largest corporate privatization in history. I’d say we got it right. Privatization has unleashed the passion of our team members who have the freedom to focus first on innovating for customers in a way that was not always possible when striving to meet the quarterly demands of Wall Street." [0]
I get what you are saying, and even agree to an extent. The fact that Dell had to take itself private to be able to save itself is a good recent example of how the super short term thinking of stock market investors can hurt a company.
That said, if a company doesn't want to be exposed to that sort of investor, then it shouldn't have done IPO and become a publicly traded company.
I can only applaud Mr Dell for not going along with Wall Street and rejecting short-term planning required to do so.
If you look into how Apple and Amazon is coping while being public, you'll see that in both of those companies, the CEOs actually have very good deals with shareholders that allow them to reject short-term stock market greed and lets them focus on long-term goals.
The ultimate goal of a private company should not be going public - this is a false dychotomy created in part by Wall Street. Growth, innovation and long-term survival (meaning average positive cash flow over many years) should be that ultimate goal.
According to Michael Dell's op-ed in the WSJ [1], two main benefits of going private are 1. longterm-planning => value + innovation and 2. activist shareholder avoidance.
Michael Dell also has a track record for anti-competitive practices. Hell, the accountant and CFO from the days of their "cookie-jar accounting" schemes are still at Dell.[2] My understanding's that the anti-competitive measures weren't even illegal, it's just that Dell, as a public company, broke the law by failing to disclose the payments from Intel in Dell's financials. Going private removes this burden.
It's not that Dell would have an incentive to go private, it's that it would have no choice with Michael Dell bearing down on it, as the CEO and chairman of the board and owning 12% with overwhelming capital at his disposal. A 50% premium offer on the stock would probably more than hook institutional investors to bail out.
Michael Dell would buy it because it's crazy cheap (remove the cash discounted for 'real' liabilities and it has a 3.x pe ratio), and has a very long, very successful track record of profitability. If I'm not mistaken, it's basically had only a couple of quarters of unprofitable operation in the last 19 years (there was one in 1993).
He could plausibly earn back his $15 billion in cash in five or six years and own the entire company outright thereafter, with a potentially very good upside if they successfully transition to a services company. He's also young enough at 47, to still operate it for at least another 15 plus years with no big deal.
It's understood this is a very very very very unlikely scenario. Nobody likes to put $16 billion at such risk.
Yet another way the market is rigged against the main street investor. Successful founders of this vintage love to build their company on public money, then use their considerable leverage to take the company private after dramatic growth. I wonder if Dell will live long enough to repeat the entire process...
I observed that as a private company Dell was much more willing to embrace alternate architectures from AMD and Linux as an OS. Which really makes you wonder doesn't it? How does being publicly traded make you so coercible? I get the executive team has compensation tied to share price kind of arguments but Dell seems have done much better post LBO. What can they do now that they couldn't do then? And why? Looking forward to that HBR article if it ever gets written.
Dell went private at a low value, and public at a high one. This means they're doing the opposite of what you say: liquidating index shareholders at low prices, and then going public again at high ones, forcing index investors to sell low and buy high.
You can't just go private. You have to buy out shareholders, all of them. It is essentially a buy out. That means you have to sell at a price that the shareholders accept. Which means paying more than the marketshare.
For Apple and Google, you'd need a massive amount of money to buy the companies. Dell found it by taking his money plus taking billions in private equity partners and can creditors. One thing that helped Dell was that it was a pretty cheap company. Trading at less than 10 P to E.
Plus Wall Street trusts Apple and Google. There isn't a huge gain by going private.
The situation has a lot in common with why leveraged buyouts almost always end in disaster, dispite the hype surrounding them when they are first annouced.
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