Follow Up |
SATURDAY, JANUARY 25, 2014
The news from the company
was gloomy when Michael Dell was pushing for a leveraged buyout at a
modest price. Post-LBO, he says that the PC maker is enjoying
Three months after
the contentious leveraged buyout of computer maker Dell, the company
appears to be experiencing a miraculous turnaround. In an appearance
on Charlie Rose last month, founder Michael Dell repeatedly
said the PC manufacturer is seeing "double-digit growth."
Recall that as
recently as last summer, as Michael Dell and Silver Lake Partners
pursued the LBO, news from the company was unremittingly bleak.
On Oct. 29, 2013,
after a nine-month battle that was frequently chronicled in the pages
of Barron's, Dell prevailed over the opposition of activist
investor Carl Icahn and other shareholders, taking the company private
in a $25 billion deal.
On Monday, Dell
plans to issue its first financial report since going private, for the
period ended on Oct. 31, though it is taking an unusual approach
because it won't publicly release its financial results.
investors who hold the company's debt will get access to the report
and conference call if they sign nondisclosure agreements. Most
companies that go private release results publicly, especially if,
like Dell, they have public debt outstanding.
probably will leak out, anyhow, given the large number of investors
who will have access to it.
recent statements provide belated support for Icahn, Southeastern
Asset Management, and other buyout opponents who argued that the Dell
board, in an attempt to justify its decision to sell the company for a
low-ball price under $14 a share, offered an overly pessimistic view
of Dell's prospects. The board suggested that the PC business was in
trouble, that Dell lacked scale in its newer software and services
businesses, and that the share price would collapse if the deal were
In the April 1,
2013, cover story ("Michael
Dell's Folly") and elsewhere, Barron's argued that
Dell and Silver Lake were underpaying for the company.
On Charlie Rose,
a confident Michael Dell talked about doubling the size of the
company's software and services business to $42 billion in annual
sales, while noting, "Our business is up double digits already." Rose
took a shot at Icahn, calling him an example of people "who don't care
about the products.…It's financial engineering." Dell added, "It's not
how I would want to spend my life." Neither Icahn nor Dell would
comment to Barron's.
development in recent months is an apparent bottoming in the
supposedly terminal PC market, with JPMorgan analysts now forecasting
flat sales volume this year. That should help Dell. PC-related stocks
are up sharply in the past year. Big winners include
Western Digital (ticker: WDC),
Seagate Technology (STX), and
Hewlett-Packard (HPQ), the closest comparable company to
Dell. HP shares, at $29, have almost doubled in the past year. Dell,
if it had remained independent, probably would be trading in the high
teens now, based on HP's price.
All this suggests
that Michael Dell could make a killing with the LBO. He and Silver
Lake put up about $5 billion, and used the company's own cash and
borrowings for the rest of the tab. There's speculation that Michael
Dell is eyeing 25%-plus annualized returns.
-- Andrew Bary