This summer, I wrote a piece for Texas Monthly on the management-led buyout of Dell in which I argued that going private was Dell’s best option for survival. The deal was controversial because some big investors, including Carl Icahn, claimed founder Michael Dell was low-balling shareholders with his $13.88-a-share offer.
Some of them, in fact, are still challenging the buyout price, seeking a judicial review of the deal in Delaware court. That challenge has little chance of success because much of it depends on predictions for personal computer sales. It’s difficult to predict how much PC sales will slip.
However, as we come to the close of the year, we have a better idea of what Michael Dell undoubtedly saw as he looked at the prospects for his company’s biggest revenue-generating product. PCs sales are headed for their worst year ever. They tumbled 10 percent as consumers shifted their purchases to tablets and smart phones, and the slide is expected to continue next year, according to market researcher International Data Corp. These declines follow a 7 percent drop last year.
In other words, things look ugly if your company’s primary business is making PCs, as Dell’s is. The company can’t afford to make a gradual transition to the services business it has long dabbled in. That’s why the buyout made sense, and it’s why, after all the drama surrounding the deal, the price was about as fair as investors could expect.
If the deal had fallen through, shareholders would have been left with a rapidly decaying business and little hope for a turnaround.