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Now that it's private, Michael Dell can grow his brainchild.
After an exhaustive, lengthy process of trying to take Dell private, Mr. Dell's mind is at ease.
The deal is complete.
But now, his mind is again racing, just in another fashion — moving from ideation to
implementation. Let's look at three reasons that going private was a good move for the
company.
Now, nearly 15 years since these first accolades, Dell once again is expanding on
repositioning efforts. If history is any indicator, we may see some top spots in coming years.
And if Mr. Dell's leadership record is not enough, consider the company's strengths,
including customer loyalty. Dell didn't lose a single large customer during the choppy
waters of the past year. In fact, some of its large clients drafted contingency plans in case
Mr. Dell would no longer be the CEO.
Further, Dell boasts more than 140,000 channel partners, which generates about 35% of the
firm's commercial revenue; seven years ago, no revenue came through these channels.
Additionally, Dell continues to grow its $21 billion enterprise business, which is already up
110% in 5 years, an average of 22% annual growth. The target: $40 billion.
Imagine the progress that can be made when Mr. Dell holds the reins and is only
responsible to the primary shareholder, himself.
Assuming Dell spent the same amount on dividends and buybacks as it has the past 5
years, this cash flow would exceed the monthly interest payments to the banks that lent
cash to Dell for the buyout. That equation is pretty good, especially considering the
potential future dividend increases had it stayed public and the extra cash it will have to
invest or pay down additional debt.
So, with less distractions and more control, Mr. Dell is now building on his vision.
One way Dell expects to achieve this goal is by targeting mid-size companies, the fastest
growing portion of the vast $3 trillion IT business. So, let's run some numbers. According to
Mr. Dell, Dell owns 2% of the market and no competitor owns more than 5%. If Dell can
capture just an extra .25% growth within the fastest growing segment of the market, it will
generate $7.5 billion — not bad.
Additionally, Mr. Dell will invest more heavily in R&D, something shareholders seemed to
dislike, while building out the company's customer base. Mr. Dell even plans to sell PCs as a
loss leader, considering 90% of its PC users buy extra services or products.
As a result, competitors like Hewlett-Packard, which are still under the watchful public eye
and are subject to quarterly reports, may be in for a harsh awakening.
We still have a long way to go and many challenges to meet.... But under a new private
company structure we will have the flexibility to accelerate our strategy and pursue organic
and inorganic investment without the scrutiny, quarterly targets and other limitations of
operating as a public company. Our 110,000 team members worldwide are 100 percent
focused on our customers and aggressively executing our long-term strategy for their
benefit.
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