Michael Dell, the founder of Dell, this week took the company private after seeing its share price plummet in recent years. Ireland, where the company employs about 2,000 people, will be watching on, hoping Dell’s fortunes can be revived, writes Kyran Fitzgerald
Things are definitely stirring across the pond. The avalanche of cheap money is revving up the US economy. Construction activity has rebounded, with housing starts double that of 2009, at the very bottom of the cycle. The corporate bond market is flying, raising fears of another bubble.
This, it seems, is a good time to raise funds if you are an established corporate player keen to embark on a major financial restructuring, and there are few more established players than Michael Dell, founder of Dell Corporation, the US PC manufacturer which employs more than 2,000 people in Ireland.
The 47-year-old Texan has just joined forces with long-time associate, the private equity firm Silver Lake, to take the company private.
This insider-backed, leveraged buyout deal values Dell at almost $25bn (€18.5bn). It is being funded by $7bn in equity and $17bn in borrowings. The founder is stumping up around $4bn in cash and shares.
The move is a culmination of a long process — Michael Dell originally approached the board with a slightly lower offer last August.
Shareholders are being offered a premium of around 25% on the share price pertaining just before the announcement.
Assuming the deal is completed, it would be the biggest leveraged buyout since the onset of the financial crisis in 2007.
There will, however, be hurdles to be surmounted.
Many shareholders may suspect Mr Dell will be buying them out on the cheap after what has been a lengthy period of share price underperformance.
There will be a period set aside for counter offers in an effort to reduce the scope for expensive, delaying litigation. Some analysts doubt that such an offer will emerge.
Moves by owners to take their company private certainly featured quite a bit during the last decade when the private equity taps were gushing.
Think Eircom and Smurfit Group, privatisations which did not turn out to be happy experiences for the main body of shareholders.
Michael Dell certainly has reason to be disillusioned with a stock market that has cast a cold eye on his company. The Dell share price peaked at $54 at the top of the dotcom boom, but since then, it has been downhill.
The founder moved away from his creation in 2004 only to return as CEO in 2007 in an effort to revive the company.
At the time, the share price stood at $30. Last year, it dipped below $10 — clearly, the sort of marketplace miracle engineered by Steve Jobs at Apple has yet to be achieved.
The problem Dell has faced is not one of business and financial collapse, but rather one of steady erosion amid continuing profitability.
Michael Dell owed his early success to a mixture of business innovation and sharp cost focus. He was just 19 when he founded the business as a student at the University of Texas.
It is said he purchased his first calculator at the age of seven. At 15, when he got his first computer — an Apple — he disassembled it so as to see how it worked.
He outearned his high school teacher, selling ads for the Houston Post, his local newspaper. Much of the proceeds he invested in stocks and precious metals.
In 1984, he registered a new company, PCs Ltd. By then, clunky personal computers were appearing on desks across the world.
Staff consisted of three fellows with screwdrivers sitting at a table upgrading PCs. Within months, Dell Computer Corp was born.
A year later, Dell started making its own PCs. By 1990, it had established operations in a number of European countries. It set up in Ireland that year and would employ 4,500 people at its peak.
By then, Michael Dell was well-known across the US, his direct sales approach bringing affordable PCs within the reach of many.
In 1987, he cashed in with a $21m private offering, with another $30m being raised in an IPO the following year.
Wall Street was booming. Greed was good. It was the era of the leveraged buyout, typically taking the form of distinctly hostile raids on established companies. Businesses were shaken up. Factories were closed, sometimes unnecessarily, while raiders bagged big profits.
All of this culminated in the takeover of RJ Nabisco in 1989, a deal commemorated by Barbarians at the Gates, later turned into a movie.
The Gordon Gekko era gave way to the Goldilocks era of the tech boom.
Ireland cashed in. Dell brought thousands of jobs to Limerick at a time when the country was still a competitive location for basic computer manu-facture. The Noughties was to prove more problematic for both Dell Corp and Ireland.
The pain was felt when Dell finally scaled down its Limerick plant, shifting production to Poland. Around 1,900 jobs went directly, with thousands of spin-off jobs also disappearing.
By then, the Far East had emerged as a rival low-cost location. Dell remains the top dog in PC manufacture, but it is being strongly challenged by Chinese firm Lenovo.
A more fundamental challenge is the ongoing shift away from desktops — Dell’s core market — to laptops, tablets, and smartphones. Dell is in these markets, but it has yet to make real inroads.
Michael Dell has sought to emulate IBM, which transformed itself from a maker of mainframes into a full service IT company. He has targeted cloud computing/remote data infrastructure as a growth area, recently announcing 150 ‘cloud’ jobs at the Irish operation.
Over the past couple of years, Dell has invested $13bn in cloud and security companies. It is believed the company is halfway through a transformation plan.
The move to private has been endorsed by many, such as former Apple boss John Sculley. However, scepticism has been expressed by analysts and business commentators. It is suggested the move is being driven by tax planning on Dell’s part.
Whatever the case, the deal is expected to unleash a wave of leveraged buyouts, though few are suggesting that the barbarians will be returning to the gates.
Closer to home, Irish employees have reason to ponder. The company will be taking on more debt following the buyout — the new owners may move even faster to shake out costs across the organisation.
- Age: 47. Grew up in Houston, Texas, son of a stockbroker and an orthodontist.
- Education: University of Texas.
1984: Dell Corporation founded.
1987: Dell IPO raises $21m.
1992: Michael Dell becomes the youngest CEO of a Fortune 500 Company.
1990: Sets up operation in Ireland.
- Family: Married to Susan Lieberman; four children.
- Residences: Texas and California.
- Other: Set up Michael and Susan Dell Foundation.
Picture: Michael Dell: Was aged just 19 when he founded PCs Ltd while a student at the University of Texas. It would soon be renamed Dell Computer Corp, and immense success would follow.
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