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Henry Blodget explains Dell Going Private

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In 1997 Michael Dell taunted Apple, saying it should take itself private.

Now Dell is taking Dell private.

Henry Blodget explains the game:

Given that Dell going private is pretty much a fait accompli at this point, we might as well speculate about what MichaelDell and his private-equity partners will do when the deal closes:

  • Take the $15 billion of cash on Dell's books and use it to pay themselves a massive dividend. This technique instantly returns cash to the private-equity firm, thus leaving them with less cash at risk. This dividend will likely cover more than the amount of cash they put up to buy the company, thus leaving them playing with house money.
  • Use some of the rest of the $15 billion to pay down some of the debt they used to buy the company. (They don't want to completely overload Dell with debt, or they won't be able to sell it at a huge premium later.)
  • Fire thousands of employees and drastically cut costs.
  • Sell off some crappy or un-strategic businesses.
  • Maybe buy or otherwise enter the smartphone and tablet businesses.
  • Sell the company back to the public-market shareholders at a much higher price than they bought it for.
  • Smile all the way to the bank.

That's standard private-equity operating procedure.

When these techniques are done well, they actually improve companies, in addition to coining money for private-equity investors.

Who gets hurt by this? Shareholders who held for the last 13 years... And many employees. 

  • Maybe buy or otherwise enter the smartphone and tablet businesses.

But they already exited that business??

Time to re-enter the business as a Microsoft reseller.

Surface and Windows 8 Mobile need allies if Microsoft is to compete with Apple and Google.

I'm guessing that's what Microsoft's $2 billion investment in Dell is about.

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