Michael Dell, chief executive officer of Dell Inc. (NASDAQ:DELL) released a new presentation to investors explaining the underlying principles for taking the company private in his effort to counter Carl Icahn’s campaign to vote against the go-private offer of the beleaguered PC maker.
Michael Dell emphasized that the transformation of Dell Inc. from a PC-focused business to an Enterprise Solutions and Services (ESS) focused business is important for the future success of the company due to rapid changes in the PC market, which is under significant pressure and increasing threats from cloud computing and mobile/tablet products.
ESS Growing, Just Not Fast Enough to Offset Current Losses
He also stated that the PC maker faces strong competition from low cost competitors worldwide and shifts in product demands in segments where it is historically weaker. According to Dell, the ESS business of Dell is growing but confronted with ongoing integration and competitive risks, thus its market share remains at less than 1 percent (closely tied to the performance of its PC and server business).
Michael Dell emphasized that the growth of its ESS operating income is not fast enough to offset declines of its PC core business, which represents a substantial portion of the total operating income of the company.
He also pointed out that Dell needs a significant investment to succeed in its transformation, citing trends in cloud, mobility, virtualization, and software-defined networking which are revolutionizing data center products and services, and shifting away from traditional data centers toward outsourced and cloud-based delivery models. According to Dell, the company lost market share in storage after ending its re-seller relationship with EMC, and software-defined networking could disrupt the networking market.
Michael Dell emphasized transformation is more difficult for Dell as a public company. He said that the transformation remains in initial stages despite the investments over the past several years.
“Significant incremental investment is required to extend end-to-end IT solutions capabilities, expand sales coverage, compete in emerging markets, invest for growth in PC and tablet business, simplify and enhance customer experience,” said Dell.
Michael Dell Says Company Repositioning Will Take Time and Money
Michael Dell believes that the full implementation of the steps required to position the PC maker over the long-term will have a negative impact on earnings in the near-term. He cited the result of the company’s earnings result in May as a proof.
Furthermore, Michael Dell believes that the company should take a more cautious approach to transform the company. He said, “We must consider how our stock price will react to the steps we take and what effect that will have on the company and on customers and employees.” According to him, a “lagging public stock price” would hurt customer confidence and the excellent commitment of the employees of the company.
Michael Dell reiterated his position that, “Dell will be better able to aggressively pursue its long-term business strategy and thereby increase the speed and likelihood success of the transformation” as a private company owned by two financially strong equity investors.
He emphasized that private owners aligned with the long-term strategy of Dell Inc. (NASDAQ:DELL) to absorb the risks of the transformation and the possible near-term adverse effects on earnings, and financially strong equity investors are capable of providing additional capital if needed. “As a private company, stock price fluctuations will no longer be a concern,” said Mr. Dell.
Moreover, Mr. Dell pointed out the $13.65 per share buyout offer by himself along with Silver Lake and MSD Capital is the result of a transparent, robust, and competitive process conducted by the special committee of the company.
Icahn Wants a Higher Offer
Carl Icahn and Southeastern Asset Management are encouraging shareholders to vote against the $13.65 per share proposal of Mr. Dell, Silver Lake, and MSD Capital. In his recent letter, Icahn suggested that Dell Inc. (NASDAQ:DELL) should begin with a $14 per share tender offer, and once again emphasized that the go-private buyout offer “significantly undervalues the company.”
Michael Dell said that if the shareholders of the company vote against the go-private offer, he will remain committed to make Dell Inc (NASDAQ:DELL) the best company in his capacity.