Microsoft: $2B Dell loan supports key partner, helps Windows ecosystem

Updated below with HP comment criticizing the deal and making a pitch for Dell’s customers, as well as comments from Michael Dell.

Microsoft’s involvement in the $24.4 billion deal to take PC maker Dell private was officially confirmed this morning, with the Redmond company agreeing to provide a $2 billion loan to help finance the transaction.

The agreement, led by Michael Dell and the Silver Lake investment firm, doesn’t give Microsoft an equity stake or operational control over its longtime partner.

However, the loan supports a key Windows PC maker and strengthens the ties between the companies at a time when the landscape for computing and devices is changing radically. Just yesterday, for example, HP announced that it would start selling its first Google Chromebook laptop.

Here’s Microsoft’s full statement on the agreement.

“Microsoft has provided a $2 billion loan to the group that has proposed to take Dell private. Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future.

“We’re in an industry that is constantly evolving. As always, we will continue to look for opportunities to support partners who are committed to innovating and driving business for their devices and services built on the Microsoft platform.”

Could this cause more friction with other PC makers, in addition to the tension from Microsoft’s decision to release its own Surface tablet. Absolutely. But given the degree of change taking place in the broader computing world, exemplified by the rise of the iPad and other forms of mobile computing, it’s not a huge surprise that Microsoft is willing to take that risk.

Update: Here is HP’s statement on the deal …

“Dell has a very tough road ahead. The company faces an extended period of uncertainty and transition that will not be good for its customers. And with a significant debt load, Dell’s ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell’s customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity.”

Update: Here is Michael Dell’s memo to staffers:

“Dell’s transformation is well underway, but we recognize it will still take more time, investment and patience. I believe that we are better served with partners who will provide long-term support to help Dell innovate and accelerate the company’s transformation strategy. We’ll have the flexibility to continue organic and inorganic investment, and grow our business for the long term.”

  • Guest

    Congrats to Microsoft and Dell on this fortuitous pairing!

    Incidentally, Todd, could GeekWire please lay off on the CSS trickery? Right now I see a toolbar that won’t move from the top of my screen and a “Golden Geek” ad that’s flown in from the right. When I scroll down, it’s because I don’t want to read what’s at the top of my screen.

    • guest

      +1 on the Golden Geek ad.

    • http://orcmid.com/blog/ orcmid

      I hadn’t noticed that flying ad before. Since I am officially a Golden Geek (50+ years as a software developer and computer geek, I don’t think I’ll be paying for the privilege). Although my Emerald Geek anniversary is this Spring, still … http://orcmid.com/blog/2009/01/golden-geek-going-for-platinum.asp

  • http://twitter.com/Seattle_Startup Seattle Startup

    Reminds me of the investment Bill & Company made in Apple a few years back.

    • guest

      It was more than a decade back and I don’t think they’re likely to turn out anywhere similar.

  • the_robin

    (Re: HP’s critical comment)
    Lest we forget, this is the same HP that wanted to spin off its entire PC business less than a year and a half ago. If I were a large Dell customer, I’d want to see a much more convincing turnaround from HP before taking their hypocrisy at face value.

    • guest

      Sure, but of course HP (and every other DELL competitor) is going to take the same shot. FUD is used because it works.

  • Victor

    Oh, let’s call this for it really is, a raping of current Dell shareholders. PE deals are financial engineering deals with the sole purpose of making the insiders a boat load of money. This is not about investing in DELL the company.

    With the company sitting on $15B of cash, it is precisely what makes it so enticing for Michael Dell and Silver Lake partners. They will be paying themselves a huge special dividend in short order with this $15B. They will then layoff thousands of people to gut the company to cut costs so they can service the huge debt load. If and when the timing is right again, they will then go IPO to unload whats left fo Dell to the next crop of retail investors. If they really wanted to invest in the business and make changes, why couldn’t they have done that with the $15B they already have? Who is stopping them? Cut the BS about how this is at all similar to what Microsoft did with Apple in the late 90s.

    • guest

      Dell’s shareholders have to approve the deal. So if it goes ahead it’s not rape, just maybe ill-advised consensual sex.

      • Victor

        Dell shareholders have very little say in this. Michael Dell controls the majority shares and the board. Kind of reminds ones of how Microsoft is, isn’t it? Yes, Dell shareholders are screwed when it is obvious Michael Dell’s interests isn’t aligned with theirs. PE doesn’t exist to help public shareholders, period.

        • guest

          They have ultimate say. It can’t go forward w/o their approval. MD may control the board. Their rapid approval of this very cheap valuation certainly raises a question regarding whose interests they’re serving. But he doesn’t control a majority of the company. His stake is about 16%. Approval is said to require a majority with MD’s shares excluded due to his involvement in the buyout offer.

          • Victor

            Half of the board members are firm Michael Dell backers thus entrenched. The so called outside shareholders are mostly large mutual funds, which for the most part are index and ETF type funds. These are not active managers thus they have little or no skin in the game. Look for this deal to sail through with no resistance.

          • guest

            Southeastern holds about a 7.5% of the company (second only to MD) and has a cost basis north of $20. So they have significant skin in the game. We agree on the likely outcome however.

    • Bill

      Another rape, actually. The stock already lost half its value since Michael came back as CEO. Sort of like MS and Ballmer, only faster. And now shareholders face a choice between making those paper losses real, in return for a small premium to walk away, or else fighting the CEO and board. These guys were happy to be public when Michael was selling his shares and using options and shares to incent employees, especially senior executives. Now that they’ve turned DELL into a depreciating asset they want to take it private on the cheap, thereby setting themselves up to gain again if they’re successful. I have more respect for Apple. They could have taken the same cowardly option. Instead they stuck by the people who had stuck by them and ended up amply rewarded them over the subsequent decade.

  • Disgusted

    Awesome precedent. Screw your shareholders for years while telling them to be patient. Then when you think you might finally be nearing an inflection point, point a gun at their head and tell them to accept a low ball offer that only your abject failure makes possible. Moral of the story is shareholders beware. If you think the CEO is failing and the board is in his pocket (MS anyone?), get rid of them before they pull a stunt like this and leave you holding the bag.