Microsoft Might Invest $1B-$3B In Dell Buyout As Talks Advances: Reports

January 23, 2013 0

Redmond, Washington – Rumors are swirling in tech circles claims that Microsoft executives is in talks with Dell CEO Michael Dell and private equity firm Silver Lake Partners-one of the private equity firms that was initially named last week in news reports about Dell going private after more than two dozen years as a public company, according to reports by The Wall Street Journal and CNBC.

CNBC, citing sources close to the matter, said the Redmond, WA-based software giant is reportedly is joining the effort to help Michael Dell, might invest $1 billion to $3 billion toward the leveraged buyout, a move designed to help jump-start the struggling PC maker’s efforts to transform its business and that a deal is expected to be reach by the end of the week.

According to CNBC’s David Faber, citing sources, says the Redmond, Wash., software giant is in talks with Silver Lake to help take Dell private. Also, a special committee for Dell shareholders is part of the negotiations, according to CNBC.

According to Bloomberg reports, quoting unnamed sources, said Dell was in “preliminary” negotiations with private investors to go forward with a move intended to “accelerate efforts to revive growth and cope with competition without quarter-by-quarter scrutiny from public shareholders.”

Faber noted the investment would not necessarily give Microsoft a significant equity stake in the company, but would help raise the funding needed to complete a deal, but financing for the deal, which would rank among the largest buyouts ever, which could be worth as much as $25bn.

Assessing the current scenario, Microsoft is a large supplier to Dell and would certainly have an interest in stabilizing the company, which has seen its share price steadily decline over the years. Yet its investment could complicate relations with other PC vendors, another person following the discussions said.

“They have unlimited cash and if they went into the junior debt, they would have attractive high single-digit returns,” said one credit investor. “They would also have a strategic toehold.”

Rumors about possible buyout partners has been swirling since Bloomberg reported Dell’s intentions on Jan. 14. The news followed a rough year for the Round Rock, Texas-based company, which made a variety of noteworthy acquisitions but could not sustain enthusiasm among investors. The Wall Street Journal later followed with its own report that Silver Lake, Michael Dell, and at least one other investor were hoping to complete a $22 billion to $25 billion leveraged buyout.

More importantly, Microsoft CEO Steve Ballmer and Michael Dell have appeared very chummy of late, even doing a joint interview with the New York Times for the Windows 8 launch in October. It’s not a big stretch to believe the two CEOs are in talks about an investment by Microsoft.

Besides, Microsoft, is not so naive to investing in other tech companies. In recent years, it has given money to Facebook, Barnes & Noble, and Comcast, and it also invested in Apple when it was struggling. However, investing in a close partner like Dell could be tricky for Microsoft.

According to analysts, “Microsoft’s involvement does not surprise me,” Gartner research VP Steve Kleynhans said in a phone interview, noting that Dell is “a really big customer” and that Microsoft would probably value “a little bit of insight and control over whatever restructuring might take place.”

Dell declined to comment, as did Microsoft, but the report states that a deal should be finalized by the end of the week.

Here is the full CNBC video: