Why Does Microsoft Want a Piece of Dell?


There’s a new dynamic to the speculation about Dell’s bid to buy back stock and become a private entry, with reports emerging yesterday that Microsoft is also taking part in the discussions and may be planning to invest anything between $1 billion and $3 billion into the company.

According to CNBC’s report, investment firm Silver Lake Partners is still central to any potential deal, and has now adopted a kind of ‘matchmaking’ role, handling negotiations between Microsoft, Dell, and a committee that represents Dell’s shareholders. This was later confirmed by the Wall Street Journal, which suggested that the software company may back Dell to the tune of around $2 billion. WSJ adds weight to these claims by pointing out that the Silver Lake Partners previously played a role in negotiating Microsoft’s $8.5 billion Skype buyout.

SiliconANGLE reported last week that CEO Michael Dell is determined to take his company private in order to manage its transformation into an enterprise player without the added pressure of investor scrutiny. Should the deal come to fruition, the new Dell would be co-owned by Michael Dell, as well as Silver Lake and another investment firm, Evercore Partners, reports Bloomberg. Currently, Michael Dell already owns about 15.7% of the company with the rest belonging to shareholders.

Dell & Microsoft: A Match Made in Heaven?

Dell, as we know, has its problems. The company is in the midst of a serious change of direction as it looks to migrate away from its flagging PC business and compete with the likes of IBM and Oracle with its cloud and enterprise offerings. Michael Dell is bullish that Dell can do so, but acknowledges that it will be a long, hard road ahead. For more background on this, you can watch Michael Dell’s interview on theCUBE at Dell World last month:

Michael Dell, discussing shareholder value with John and Dave on #theCube.


Meanwhile, Microsoft has its own problems, with the popularity of tablets and smartphones eating away at the PC market and sales of its biggest cash cow, its Windows operating system.

Both companies face some daunting challenges, but when your back’s against the wall it’s always nice to have a heavyweight standing next to you, and that would appear to be what Microsoft is thinking now. Essentially, by buying a piece of Dell, Microsoft would secure itself a guaranteed customer, ensuring Dell’s commitment to Windows 8 at a time when few others have.

There are benefits for Dell too. Aside from the obvious that the money would help it to finance its own buyout, there would also be strategic advantages that arise from such a close relationship with Microsoft, as Rob Enderle pointed out in an interview with PC World.

“Microsoft has a large pool of cash that they often have difficulty figuring out how to invest strategically, Dell private is potentially a far more powerful company then Dell Public, and Dell Private tied to Microsoft would be a vastly more powerful combination than Google and Motorola.”

Should the deal happen, another possibility is that Dell and Microsoft could team up on hardware, with Dell taking over the production of Microsoft’s Surface tablets, leveraging its brand and supply chain to bolster its disappointing sales.