As Dell tries to evolve into a software company for corporate customers, it may be seeking to undergo a transformation without the glare of Wall Street.
Shares of Dell, the world's third-largest computer maker, rose 13% to close at $12.29 Monday after Bloomberg News reported it is in early buyout talks with at least two private-equity firms. More than 114.8 million shares traded, well above the daily average of 21.6 million.
The deal could fall apart if the firms can't line up the needed financing, the Bloomberg report says, citing two people familiar with the matter.
Dell declined to comment.
Founded by Michael Dell in 1984 while he was a student at the University of Texas-Austin, the company revolutionized the PC business by selling directly to consumers and assembling customized PCs to order.
But with consumers flocking to tablets and competition from Asian manufacturers rising, Dell's PC business has declined. In 2012, Dell shipped 38.7 million PCs worldwide, a 12.6% drop, according to research firm IDC. Its global market share fell to 11% from 12.2% as Asian companies such as Lenovo and Asus saw their shares increase.
Dell has sought to grow by expanding into more profitable areas, including enterprise services, storage and software. In July, Dell paid $2.4 billion to buy Quest Software, which specializes in software products for corporate security, managing user access to IT systems and work-computer "virtualization." In 2009, Dell bought Perot Systems, a provider of IT services to large enterprise customers, for $3.9 billion.
As computer sales to corporate customers are based on relationships that can be leveraged for other growing businesses such as software, Dell and other large U.S. computer makers have been paying less attention to selling PCs to consumers, says Kirk Yang, managing director of Barclays Asia Tech Research. "Hewlett-Packard and Dell can get higher margins for non-PC businesses," he says. "And they're focusing their resources on these non-PC businesses."
Rerouting resources from lower-margin businesses to growing areas could be easier without having to report earnings every three months as a publicly traded company, and this strategy may have played a role in Dell's decision to pursue a deal, says Crawford Del Prete, an IDC analyst.
"For Dell to get out of one part of the PC business, that would mean a significant interruption in (its) quarterly revenue and cash flow. And investors might panic," he says. A private-equity owner may say, "'We're going to look beyond the next four quarters.' You need an investor with a long-term horizon to transform the company."
That Dell has plenty of cash also makes it attractive to private-equity investors, Del Prete says. As of November, Dell had a cash balance of $11 billion.
As of Monday, Dell's market value totaled more than $21.3 billion; Michael Dell holds about a 16% stake.
At a 2010 industry conference, Dell said "yes" when asked if he'd considered taking the company private.
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