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Dell $24bn deal buys firm time to retreat and regrow in PC market battle

05 Feb 2013
Michael Dell sitting

Technology chief executives often quote Chinese military strategist Sun Tzu, famous for his treatise The Art of War - presumably seduced by Tzu's liberal use of buzzwords like "invincibility" and "annihilation".

But it looks as if there's one chief exec, Michael Dell, that's taken an important lesson from military doctrine: the value of a well-ordered retreat.

Dell has struck a deal which will give him the cash - a cool $24.4bn - to take the publicly traded firm that bears his name private.

Given the tech industry's obsession with initial public offerings, it might seem an odd choice to spend money to remove a company from the stock exchange. After all, aren't founders supposed to make billions from floating their companies, not cough up billions to take them private?

But the move makes some sense for Dell, particularly given the ill winds that have been buffeting the firm of late.

The PC market - which Dell is synonymous with - has taken a hammering. Consumers and businesses alike have changed; tablets are where the money is.

And while Dell has been aware of this shift, its transition to an end-to-end supplier of business hardware, software and services will take some time - time that the stock market seems unwilling to give it. Dell's current market cap is $23bn - nearly half what it was in 2008.

Such a slump in value has undoubtedly irked investors - and given the unlikeliness that its stock price is going to rocket any time soon, Michael Dell will be aware his company could risk being broken up by disgruntled shareholders.

Taking the company private will buy Dell some time. And it's a deal that should hold strong appeal to shareholders, providing them with a way to recoup some value for stock that would otherwise be in the doldrums.

As Patrick Moorhead, principal analyst at Moor Insights and Strategy, told V3, in three to five year's time, perhaps when Dell has finalised its restructuring and the tablet frenzy has waned, it could return to the markets.

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