After seven months of wrangling and a shareholder vote that was rescheduled three times, Michael Dell has finally prevailed in his $24.9 billion bid to take his namesake company private. Shareholders overwhelmingly approved a buyout proposal by Dell and the private equity firm Silver Lake Partners.
Though at various junctures Michael Dell’s chances looked bleak, his victory was all but assured after activist investor Carl Icahn threw in the towel on Monday, claiming that it was “impossible to win” with his bid to buy the computer maker. In a letter to investors filed with the Securities and Exchange Commission, Icahn couldn’t resist a parting shot: “`What’s the difference between Dell and a dictatorship?’ The answer: Most functioning dictatorships only need to postpone the vote once to win.”
One of the reasons Icahn was upset: Late in the process, Dell convinced his board to change the voting rules so that abstentions didn’t count against him.
As grueling as the buyout battle may have been, Dell now faces an even bigger challenge: saving his company. The heart of the problem is clear—Dell still counts on PC sales for half its revenue, and PCs are not a growth sector. Sales are expected to tumble 7 percent this year and keep falling. The consulting firm that Dell hired to make his case to shareholders predicted the company’s sales would decline through 2016. That’s one reason Dell wanted to take the company private – he knew he couldn’t keep shareholders happy while he was spending money and taking time reinventing the company.
Since 2008, the company has racked up $13 billion in acquisitions, most of them intended to reorient Dell as a company that offers cloud computing and other cutting-edge services, rather than simply hardware. Now, those acquisitions need to start paying off. To make that happen, Dell is targeting lucrative business markets. But that could take a while, given that rivals like Hewlett-Packard and IBM already dominate. Dell must now convince potential customers that something’s changed other than just the ownership.
For Michael Dell and his company, pretty much everything is on the line. The next few years will tell us whether the buyout was a smart move or just an expensive vanity play.