For a man whose company, career and legacy are on the line, Michael Dell appears remarkably calm.
Dell Inc., the technology giant he founded in his college dorm room in 1984, became synonymous with the rise of desktop computers, but now it is racing to reinvent itself in an era of smart phones and tablets.
Mr. Dell, 48, has embarked on his biggest gamble of all – turning Dell back into a private company. In February, he and private-equity firm Silver Lake Partners struck a deal to buy Dell for $24.4-billion (U.S.), a transaction that has sparked bitter opposition from some large shareholders. On Friday, the company filed its official pitch to secure shareholder approval for the move.
“It’s really about accelerating the transformation of the company,” Mr. Dell said in an exclusive interview with The Globe and Mail on Friday in Toronto, where he celebrated the 25th anniversary of Dell’s operations in Canada.
“It is my belief that the kind of investments that the company needs to make are not likely to be attractive or well-liked by most public investors,” he said, noting the steps would lower the company’s earnings and raise expenses in the short term. “Clearly there is some amount of challenge and volatility in the sector that we’re in.”
The next six weeks will be critical. On July 18, Dell’s shareholders will vote on whether to approve the deal. The lobbying by both sides promises to be fierce. On Friday, Dell filed a final and lengthy proxy statement outlining the justification for the transaction. When I admit to Mr. Dell that I have not yet read it in its entirety, he responds with just a touch of swagger.
“I’ll boil it down for you – we’re going private. Next question!”
Some of Dell’s shareholders, including the famed corporate raider Carl Icahn, would disagree with that sense of certainty. Mr. Icahn and several other large owners of Dell stock argue that the deal, which amounts to a price of $13.65 a share, is an attempt to buy the company on the cheap. On Friday, Dell shares closed at $13.35 on the Nasdaq Stock Market.
Mr. Icahn is teaming up with Southeastern Asset Management Inc. to put forward an alternate proposal, which would pay $12 a share, but would allow shareholders to keep a stake in a publicly traded Dell. Mr. Icahn has also said that Mr. Dell “is not the guy” to lead the company into the future.
Mr. Dell doesn’t waver when asked whether he has made peace with the possibility that the battle over Dell could end with him losing his job at the company that bears his name. “I knew that if I initiated this process that was one of the potential outcomes,” he said. “I was at peace with that when I started, I’m still at peace with it. I don’t think it’s going to happen.”
After all, Mr. Dell, currently chairman and chief executive officer, has always led the company. There was a brief period between 2004 and 2007 when he was chairman but not CEO, but he quickly returned to the helm. In recent years, he has moved the company away from its personal-computing past and oriented it toward a future in sales to large businesses: software, data storage, security. Those areas offer alluring potential for growth but also stiff competition.
It has been a bumpy ride. Since the start of 2007, Dell’s share price has dropped 48 per cent. Its latest quarterly earnings report, for the three months ending on May 3, came in well below investor expectations, with profit down nearly 80 per cent from the same period a year earlier. Some investors drew the conclusion that Dell’s challenges were bigger than believed; others charged that Mr. Dell had an incentive to make it appear that way in order to prod shareholders to accept a buyout.
When discussing the deal, Mr. Dell treads carefully. He portrays himself as a servant of the process, not its master. Asked whether he would play a role in the campaign to win shareholder votes, he demurred. “If the board asks me to talk to shareholders, I’d be happy to talk to shareholders,” he said. “I really have been following the advice and instructions of the board.”
Over the next six weeks, his schedule already includes trips to China, India, the United Kingdom and Russia, plus a stop in Washington, D.C., to get his daughter settled ahead of a summer internship.
He declined to respond to criticisms of the transaction and emphasized that the job of evaluating offers for the company belongs to a special committee of directors. Indeed, he used the phrase “board-led” to refer to the buyout deliberations five times in a matter of minutes.
The process of looking at offers for the company has been “incredibly robust,” Mr. Dell added. Other players have “had opportunities to make offers and we are where we are in terms of the best offer, the highest price.” One such party was private-equity titan Blackstone Group LP, which recently withdrew from the buyout process.
“The reality is that everybody agrees that the trading market has been undervaluing the company,” said Gary Lutin, who heads the Shareholder Forum, an independent organization that supports the exchange of decision-making information between companies and their shareholders. Both the proponents and opponents of going private “all think its long-term value is greater than $13.65 a share.”
Mr. Dell is a cheerleader when it comes to Dell’s future opportunities, whether helping companies to analyze the reams of data they collect about their customers or pushing ahead in “virtual client” computing, where people can access the information on their computer from any device. At the same time, he doesn’t plan to abandon the market for PCs.
“If you go to a place in the emerging market like Indonesia, and you say, ‘Let’s talk about computing,’” Mr. Dell said, customers don’t want to talk about software services and cutting-edge systems management. “They want PCs.”
Asked to consider his own legacy, Mr. Dell paused before answering. “I’m 48 years old,” he replied. “Why don’t you ask me in 20 or 30 years?”