Microsoft May Help Finance Dell Buyout

| Analysis

Microsoft is reportedly in talks with various parties involved in an effort to take Dell private. According to reports, Microsoft is interested in harnessing a few billion dollars of its large cash hoard in a loan that could turn into equity in the future.

Microsoft CEO Steve Ballmer

Microsoft CEO Steve Ballmer and Some of His Cash Hoard

Rumors began swirling last week that a private equity group was interested in taking Dell private. Dell founder Michael Dell is reportedly involved with the group, which also includes Silver Lake Partners, the primary private equity firm behind the move.

The issue is going to be financing. It will take north of US$20 billion to buy the company—Dell's market capitalization has risen to almost $23 billion on the buyout rumor—and it turns out that money has to come from somewhere.

The way it would (loosely) work is that the group formed to make the buyout would offer X amount of money to Dell's shareholders and board of directors. That amount would most likely be at a premium to Dell's share price, or at least a premium to the company's fair value as speculators jack up the share price in anticipation of this deal.

If the board approves, it would be sent to Dell's shareholders, and if they approve it would be subject to various bits of regulatory scrutiny. Depending on the premium offered, the chances of shareholders not approving is next to nothing.

Still, the money has to come from somewhere. Microsoft has tons of it, and just as Big Redmond took the opportunity to put $150 million into Apple when Steve Jobs needed a cash infusion in 1997, Microsoft reportedly sees an opportunity in playing a role in taking Dell private.

The Wall Street Journal reported that Microsoft could invest between $1 and $3 billion in the effort. That amount would leave Microsoft as a minority partner in the deal, and shouldn't be seen as Microsoft wanting to buy a hardware maker so it can make more of its own devices.

It's more likely to be an investment play by Microsoft than a strategic move related to its Windows, Windows 8 for tablets, or Windows Phone business.

That said, Microsoft could find it beneficial to have close ties to an enormous hardware maker not burdened by the requirement of reporting its every move to the public in the form of quarterly reports and SEC filings.

Microsoft runs the risk of annoying its PC OEM licensees, but the company has shown it's willing to take that risk by releasing its own Surface tablets.

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6 Comments Leave Your Own

Terrin

The way I remember the Microsoft essentially loaning Apple $150 million was Jobs calling Gates up and saying let us settle this second lawsuit Apple has brought against Microsoft, which according to experts Apple had a good chance of winning. Apple wanted three things, 1) Microsoft to promise Office for the Mac for Five years, 2) a cash infusion, and 3) a cross licensing deal. The $150 million was only part of the money involved. The rest was undisclosed.

It seems strange to use the 150 Million Microsoft loaned to Apple as an example of how Microsoft likes to invest, as it was part of a lawsuit settlement. I was unaware that Dell sued Microsoft.

Bryan Chaffin

The $150 million Microsoft investment I refer to was the restricted stock the company received. That money was not a loan, it was a stock purchase, hence an investment.

Terrin

PS:

At the time Microsoft loaned Apple the money, Microsoft was making almost 300 million a year on selling Office for the Mac.

Terrin

Sure it was an investment, but the “investment” certainly wasn’t typical because it only came about as part of the lawsuit settlement.

RonMacGuy

First Dell goes private, and then, perhaps, Apple?!?!?

Let’s not forget that Microsoft can use all of that profit off Surface sales to fund the Dell deal.  Oh wait, have they actually made any money?!?!?  But that commercial with everyone dancing around and snapping keyboard to Surface tablet has a nice rhythm to it!!

grin

Lee Dronick

Great graphic, again, now I need a treatment of iBleach smile

I guess this could be a lifesaver for MicroSoft, and Dell. A partnership between the two, the hardware company and the software company.

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