Dell taken private as PC slump hastens $24 billion buyout

Removing Middlemen

By cutting out middlemen and honing manufacturing so companies and consumers got exactly the PC configuration they wanted, Dell grabbed share and piled up profit even with lower operating margins than rivals like IBM and Compaq Computer Corp., fueling an almost two-decade boom. Eight years after the IPO, Dell’s stake was worth more than $1 billion.

Dell ceded the CEO role to Chief Operating Officer Kevin Rollins in 2004 only to come back to the helm in 2007 after the company lost its top PC spot to Hewlett-Packard and earnings fell short of estimates. The company was also beset at the time by an accounting scandal that later resulted in a $100 million settlement with the U.S. Securities and Exchange Commission.

Since his return, Dell has talked publicly about “pruning” his PC business while using the cash it generates to snap up companies in computer networking, storage, and enterprise software. Global PC sales fell 3.5% last year to 352.7 million units, market researcher Gartner Inc. said. Dell’s market share fell 12.3% to 10.7%.

Falling Profit

Those declines are reflected by falling profit. Dell will earn $2.98 billion excluding some items in fiscal 2013, compared with $3.49 billion in 2012, according to analyst estimates compiled by Bloomberg.

There’s no guarantee that Dell will do better as a private business. Companies including networking-equipment maker Avaya Inc. and disaster-recovery software company SunGard Data Systems Inc. have struggled since going private last decade. Chipmaker Freescale Semiconductor Ltd. went public in May 2011 after a 2006 LB0, though its stock tumbled by 19 since then, through Feb. 4.

Other technology companies have attempted to go private and had the talks fall through over valuations or difficulty in financing deals. That was the case for disk-drive maker Seagate Technology Plc in late 2010 -- though it did have a successful LBO a decade earlier. Fidelity National Information Services Inc.’s buyout talks unraveled in 2010 after the company sought a higher price than private-equity firms were willing to pay.

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