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Dell Said to Near Buyout as Microsoft Talks Deal Financing

By Jeffrey McCracken and Dina Bass
January 22, 2013 4:03 PM EST 19 Comments
Dell Said to Near Buyout as Microsoft Discusses Deal Financing
Dell Said to Near Buyout as Microsoft Discusses Deal Financing

Dell Inc. (DELL) is getting closer to clinching a leveraged buyout with Silver Lake Management LLC, and Microsoft Corp. (MSFT) is planning to provide part of the funding, people with knowledge of the matter said.

Silver Lake and Dell are negotiating a price in the range of $13.50 to $14.25 a share, said one of the people, who asked not to be named because the talks are private. Microsoft is discussing contributing about $2 billion for the deal, which could be announced this week, the person said.

Microsoft stands to benefit from propping up Dell, one of its largest partners in selling personal computers that run Windows software. Both companies are racing to make up for an industrywide slump by working together on tablets, a market led by Apple Inc. (AAPL) and Google Inc. (GOOG) Microsoft could also use Dell’s help selling to business customers.

“For Microsoft to continue to be healthy, it needs strong enterprise partners,” said Tim Bajarin, founder of technology consulting firm Creative Strategies Inc.

Gemma Hart, a spokeswoman for Silver Lake, declined to comment, as did Frank Shaw, a spokesman for Redmond, Washington- based Microsoft, and David Frink, a spokesman for Round Rock, Texas-based Dell.

If the deal isn’t completed this week, that would indicate that price has become an obstacle, and that the transaction is at risk of falling through, one of the people said. CNBC earlier reported that Microsoft plans to help finance the deal.

Tablet Strategy

Dell is just one of a handful of vendors selling a tablet machine with Windows RT, a version of Microsoft’s operating system for chips running ARM Holdings Plc (ARM)’s technology. Dell will also begin shipping a separate tablet using the main operating system, Windows 8, later this month.

Microsoft needs the support of PC makers as Apple, Amazon.com Inc. and Samsung Electronics Co. lure consumers with tablet devices. Microsoft has also shifted its longstanding tactic by competing with its own partners in selling a tablet machine of its own, called Surface.

Microsoft hasn’t commented on Surface sales, leading some analysts to speculate that the machine may not be selling well. Windows 8 also had a disappointing debut, said Todd Bradley, executive vice president at the largest PC maker, Hewlett- Packard Co.

PC Slump

Computer makers and Microsoft are facing a prolonged downturn as PC shipments are forecast to drop for the second year in a row in 2013. They fell 4 percent in 2012 and will slide a further 1.5 percent this year, JPMorgan analysts estimate. Tablet sales rose 72 percent last year and will surge 54 percent this year, JPMorgan forecasts.

This isn’t the first time Microsoft has considered bolstering a potential Silver Lake deal. In 2011, the software maker offered to help fund an offer by Silver Lake and others to acquire a minority stake in Yahoo! Inc., people familiar with the matter said at the time. The deal never materialized.

A Microsoft investment in Dell could make it difficult for the software company to work with other PC makers, according to Bajarin.

“It would complicate their relationship with their current partners, but it could potentially shore up a partner that is losing ground to Lenovo and HP,” he said.

Microsoft fell less than 1 percent to $27.15 at the close in New York. Dell rose 2.2 percent to $13.12.

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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