Microsoft Corporation (NASDAQ:MSFT) is going to join a group of investors planning to buy Dell Inc. (NASDAQ:DELL) according to rumors circling today. The company’s acquisition record in recent years has not been reassuring and investors may be worried about the price CEO Steve Ballmer might offer for the ailing PC maker.
The news, which has not been confirmed by the company, would not surprise many investors. Microsoft has made many acquisition decisions in recent years that have simply not turned out as planned or have confounded observers with their sheer size. The cost of a Dell buyout has been pinned at $20-$30 billion, and Microsoft could supply around $3 billion of that capital.
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The most recent example is the 2011 acquisition of Skype Technologies. The move, which as strategy was widely regarded as a good one, simply cost the company too much. In an example of tech bubble pricing, Microsoft paid $8.5 billion for the company. The firm’s revenue was just $860 million in 2010.
There was also the 2008 acquisition of Danger Inc., the T-Mobile Sidekick manufacturer. Microsoft bought the firm expecting it to meaningfully improve its smart phone offering. The move resulted in the eventual abortion of a smart phone project, and some contribution to Windows Phone. Microsoft lost $500 million as result of the purchase.
The latest rumors do not suggest that Microsoft is planning to fully purchase Dell Inc. (NASDAQ:DELL). The firm is only expected to be a partner in the leveraged buyout of the company. The other players, including Michael Dell himself, might restrain the firm’s exuberant spending habits, limiting the price put on the hardware company.
the reality is that big corporations become unwieldy, and in a fast paced market like technology, different parts of a firm can find themselves moving in a radically different direction than the company’s core strategy might indicate. This isn’t always a bad thing, and can create an environment of creativity, and innovation; however, for a firm like Microsoft it can lead to a huge amount of wasted money.
Dell Inc. (NASDAQ:DELL), if Microsoft Corporation (NASDAQ:MSFT) chooses to get involved in the buyout, could be another chapter in Microsoft’s history of poor, money leaking decisions. Dell is in a shrinking, outdated market; in order to get out of it, the company has to change drastically. Why would Microsoft want to get involved in such a transformation?
A decision to get involved in the Dell Inc. (NASDAQ:DELL) purchase would not be a strategic decision from Microsoft, it would be closer to an investment cleaved from the company’s business.
Analysts suggesting that an investment in Dell would be a protective measure to ensure the firm’s endurance in the corporate market are looking reasons where there does not seem to be any. Microsoft Corporation (NASDAQ:MSFT) has more money than it knows what to do with and unfortunately acquisitions might not be the best way to spend it.
Microsoft is burning money. It doesn’t need to buy Dell Inc. (NASDAQ:DELL) to take control of the company’s business. The relationship they established with Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) last year is a clear indication of this. Microsoft is large enough to control the decisions of specific firms without buying them outright, or participating in such acquisitions.
If Microsoft Corporation (NASDAQ:MSFT) goes ahead with the purchase of Dell, it will be a good way to get all of that pesky cash of the books. Unfortunately all this does is remove value from Microsoft and hand it Dell shareholders.
Microsoft shareholders might be wondering when some of the firm’s profits might be returned to them. The company’s quarterly dividend was just 20 cents in 2012.