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By | Timothy Prickett Morgan 22nd January 2013 19:05

Microsoft to pump cash into Dell buyout deal?

Said to pay billions to join Silver Lake and founder Dell

The word on the street is that Michael Dell and his rich friends are having an easy time finding the many billions of dollars needed to do a leveraged buyout of the PC and server maker and take it private, especially now that Microsoft has entered the picture with as much as $3bn to invest in the deal.

According to a report (video) on CNBC, sources familiar with the situation say that Microsoft could invest somewhere between $1bn and $3bn of its own cash, and the Wall Street Journal has also heard that Redmond is interested in putting some of its hoard into Dell.

And it's quite a hoard: Microsoft had $66.6bn in cash (surely an ominous figure) in the bank as its third quarter came to a close, and would be interested in seeing Dell do well for a number of reasons.

For one thing, Dell's server business is about the only one among the top five players that is growing, and Dell sells a lot of Windows servers. In addition, one of Dell's biggest server customers, which uses custom machines and containerized data centers for its various clouds, is none other than Microsoft. The company also has big server deals with HP, however, so don't put too much emphasis on that Redmond–Round Rock relationship.

Dell is also a key player in the PC segment and seems enthusiastic about Windows 8, and Microsoft would be keen on keeping a privately held Dell interested in the Windows agenda from smartphones to data center.

The rumors about Dell looking for financing from private equity firms to buy itself off Wall Street, presumably to give it some of the freedom it is lacking to reorganize itself for the post-PC era, surfaced early last week – and those rumors are no surprise, given how far down Dell's stock has been hammered in the past several years.

Within a few days after the initial reports, the rumor mill was saying that Silver Lake Partners was willing to spend $14 a share to buy Dell if it could get some others to pony up some of the cash. Bank of America Merrill Lynch, Credit Suisse, Barclays, and the Royal Bank of Canada all have reportedly said they found some money in their couch cushions to help.

The word from CNBC is that company founder Michael Dell is not only willing to roll in his 15.7 per cent stake in the company to do the deal, but is also willing to kick in some of his personal, non-Dell cash, and that Dell, the company, is willing to repatriate and pay taxes on some of its $14.2bn in cash to buy back shares.

Dell has only $2bn cash net of debts and not including any taxes due on repatriated cash, so it is not like the company is swimming in money. When rumors of the buyout surfaced last Monday, Dell's market capitalization rose by $2bn to just under $19bn, which ate that cash right there. The company's shares are trading at $13.18 as El Reg goes to press, giving it a market capitalization of $22.3bn.

The more people chatter about this, the more expensive the deal gets. But it is still below the threshold at which Silver Lake is willing to play. Shareholders will want a larger premium than this to sell their shares – especially those who bought Dell shares when they were trading between $15 and $17 between July 2009 and April 2012. And those who paid $24 a share for Dell before the Great Recession kicked in surely want a better deal.

That does not mean they will get one, particularly if Silver Lake, Dell, and Microsoft can swing enough money to buy a little more than half the shares. The word on the street is that Dell, the company, has hired Evercore Partners to review the deal. and that a proposed buyout offer to shareholders could come before the end of the week. ®

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