PhillyDeals: Deal enables founder to turn Dell around

Posted: February 07, 2013

The planned sale of computer company Dell Inc. to founder Michael Dell, buyout firm Silver Lake Partners, Microsoft, and other financiers marks the end of a couple of familiar periods at the busy junction of dollars and data.

The sale price, $24.4 billion, sounds like a lot; at $13 and change a share, it's a premium for a stock that's been slipping down toward single digits.

But it's less than a quarter of the $100 billion-plus (up to $58 a share) that Dell was worth in the late 1990s and mid-2000s, back when its personal computers and laptops were flying from factories and bets on Dell's prospects were the hottest contracts, drawing put and call orders for the jostling bright-jacketed traders on the basement floor of the Philadelphia Stock Exchange, which held the Dell monopoly by grace of the national stock-options cartel.

Dell was worth more than $100 billion then - about as much as Comcast is worth now, and four times Dell's current price. (Their sales are about the same, $60 billion, but Comcast is about three times more profitable.)

Dell's decline follows the slowdown in personal-computer demand, as growth has shifted to smartphones and tablets. Michael Dell has been shifting his company toward business services, buying up firms such as Berwyn-based cloud-computing connector Boomi, as Dell's Northeast Philly-native president, Steve Felice, reminded me on a visit to the Comcast Center last week to help run a program for young entrepreneurs.

Will going private work? Microsoft lent Dell $2 billion for the deal in an effort "to maintain a viable PC ecosystem" in this "post-PC era," wrote analyst YunKim in a note to clients of Janney Capital Markets. But the deal-makers are borrowing so much that the debt may "materially degrade Dell's financial risk platform," warned Standard & Poor's analyst Martha P. Toll-Reed.

Canny investors can make a bundle from these deals. Joseph Neubauer, longtime boss at Aramark Corp., was a legend among Wall Street investment bankers for managing to take the Philadelphia cafeteria operator public twice and private three times, building his fortune and those of his deal-makers along the way.

Silver Lake has a lot of experience taking companies private, and a mixed record. The firm led the $11 billion 2005 deal that took Wayne-based SunGard Data Systems private - a transaction that has yet to pay obvious dividends.

Dell disappointed the high hopes of past shareholders, who bid the company's value above $100 billion. Now, Michael Dell, who started the company in his dorm room, gets a chance to try again, for a smaller, richer crowd.

Readers' note

I started writing this column five years ago last month, at the invitation of then-Inquirer Business editor Tony Gnoffo, after returning here from a fun stint on Bloomberg's New York finance team.

It was a weekly column at first. But in July 2008, new business editor Brian Toolan asked whether I could write it every day, like an ink-stained wretch from an earlier time. I couldn't resist the challenge. Since then, I've written Philly Deals on deadline four or five days each week.

Until now. PhillyDeals is going weekly again, now on Wednesdays. I'll be doing other, longer stories - on government business and tax programs, on how things work, and profiles like the one I'm drafting on Dell president Felice, a Mayfair kid who's prospered in the tech wars - and I hope you'll be reading those, too.

I'm continuing the popular business blog and Web page at www.philly.com/phillydeals, with breaking news, interviews and links, context, and your comments. Some of those items will be updated to our daily print editions.

Thanks for reading and for keeping in touch.


Contact Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, @PhillyJoeD

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