$24.4bn to change the future of his “baby”
Having received his shareholders’ clearance for the leverage buyout he has been leading since January, at a handsome cost of $24.4bn and after a bitter fight against fierce opponents, not least with activist Carl Icahn, which resulted in the bid being raised six times before being submitted to the shareholders, we must hope that Michael Dell’s vision of the future for the company he floated in 1988 and has now bought back is spot on.
Can we expect a parallel here with what happened to Apple when Steve Jobs was given the reins again after years of being cast aside, and propelled his company to extraordinary heights by offering consumers products they had not even dreamt of? Michael Dell created a new business model back in the 1980’s by cutting out a cumbersome layer of computer retailers, selling directly to end-users and thereby eliminating stocks of finished products that become obsolete in a matter of months. This was a smart business strategy indeed, but that hardly sets Michael Dell as a creative genius on par with someone like Steve Jobs. So after a few difficult years, why should Dell’s future look rosier under the stewardship and ownership of Mr Michael Dell himself?
Taking the longer term view
Michael Dell’s view is that public companies are hampered by the stock market which forces them to focus on a ninety-day horizon to the next quarterly results rather than take a long term perspective, and prevents them from embarking on bold strategies which, being riskier, could temporarily lower their share value.
By returning the company to private ownership, Mr Dell intends to be very bold indeed by implementing a strategy that contains a number of elements which would make many a public shareholder shriek : at a time when most manufacturers are cautiously turning away from the shrinking personal computer business, Michael Dell intends to plough new energy and focus into that sector and reclaim the dominant market share his company enjoyed in the past. He also intends to significantly increase R&D investment which, in turn, means far less profit in the next few years for the sake of a brilliant long term future – if his endeavour succeeds.
A better M&A strategy, or so Mr Dell believes
Dell’s very active M&A strategy has resulted in rapid top-line growth over the past five years, but it has also been a source of a constant wrangling with many shareholders who believed the company was losing focus. Probably tired of trying to explain the cogency of his M&A strategy to a bunch of ignorant shareholders who do not understand his vision, Michael Dell could only adopt the radical solution of ending the democratic process of shareholder voting and taking control again, with a closely knit team of co-investors who believe in him and share his vision.
My experience, in sectors that do not evolve at the dizzy speed of computer technology, is that mergers and acquisitions that do not rest on a blatantly obvious business case will face hard times when the businesses need to be integrated, because any post-merger integration requires some pain and effort, which people will only accept if the reason for doing so makes it all worthwhile. In the absence of a strong “reason why”, driving change towards a successful outcome becomes arduous, if not impossible.
The number of Dell employees passed the 100,000 mark in 2011: that’s a lot of people who need convincing that Michael Dell is right. Or maybe this just calls for an act of faith, because technology progresses at a pace which requires some visionary individuals to conceive products and services we other mortals cannot begin to imagine. To win that race, Mr Dell wants to accelerate the transformation of his company, and maybe he is right in thinking that there is no time under such circumstances to convince analysts and shareholders of the soundness of his strategy – just grab control of the company and run!
This will be an interesting space to watch during the coming five years. By then, Michael Dell will either be able to grin and say to the world “told you so!”, or his company will have hit a brick wall. It would be good to see boldness rewarded, so let’s hope Michael Dell is right and all of his detractors were wrong.
(written on a Dell computer)