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How Michael Dell Loses by Winning Dell Deal

Douglas A. McIntyre

Michael Dell appears to have gotten what he wished for. The special committee of the Dell Inc. (DELL) board, charged with vetting any arrangement to buy the company, has given the founder's offer of $13.75 a share, plus the payment of a special dividend of $0.13, a wink. On top of that, investors will get the $0.08 quarterly dividend they expected. The special committee changed the voting rules for approval of a buyout in a way that favors Dell's bid. Carl Icahn et al., Dell's rivals in the race to own the company, could counter with a higher offer, but the company's board clearly has sided with Michael Dell.

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The New York Times reported:

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The chairman of the special committee, Alex Mandl, said in a statement: “The committee is pleased to have negotiated this transaction, which provides as much as $470 million of increased value, including the next quarterly dividend that will now be paid regardless of when the transaction closes.”

Dell probably can break out champagne bottles very soon to toast his victory. However, from almost any point of view, all he has won is a miniature version of Hewlett-Packard Co. (HPQ) sans the enterprise consulting business HP bought when it paid $13.9 billion to take over EDS in 2008. On the surface, HP is the more troubled company, hampered by management and board turnover and its ill-fated purchase of Autonomy for $10.3 billion. However, over the long haul, HP has a more diverse set of businesses than Dell does, one which gives it a foundation outside the PC and server sectors.

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The major concern about Dell's future has been stated so many times that analysts are sick of hearing it. Dell needs to move into tablets and smartphones, which have overtaken PCs as the computing and entertainment instruments of choice. Dell is barely in these businesses, and may never make any headway. This is not only because of the prime positions help by Apple Inc. (AAPL) and Samsung. Behind the two leaders sit firms desperate to make a dime in the industry. These include companies with good pedigrees like HTC, LG, Sony Corp. (SNE) and Motorola. Even the struggling Nokia Corp. (NOK) is better off than Dell. At least it is already in the smartphone business.

The point of recounting these challenges is not to belabor them, but to repeat them because that are so absolutely accurate.

That leaves the question of why Dell wants to own the company he founded. Either he hopes to regain his youth or salvage his reputation. He will fail at both, and almost everyone believes that, except Dell himself.

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Dell's own board issued a report several months ago that said the company had a grim future. It was considered a way to take risk out of the board's decision to sell Dell for what appeared to be a bargain. However, the board was right. Perhaps Michael Dell did not bother to read it.

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