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TMCNet:  Reports: Microsoft might be part of Dell buyout talks [Austin American-Statesman]

[January 23, 2013]

Reports: Microsoft might be part of Dell buyout talks [Austin American-Statesman]

(Austin American-Statesman (TX) Via Acquire Media NewsEdge) Jan. 23--Microsoft Corp., the giant of personal computer software, is talking with Dell Inc. and its investment partners about joining the proposed Dell buyout deal, according to news reports.

Citing unnamed sources, both CNBC and the Wall Street Journal reported Tuesday that the negotiations involving the potential buyout of Round Rock-based Dell now include Microsoft, which is a longtime business ally of the personal computer maker. Microsoft could be interested in investing between $1 billion and $3 billion into the deal, potentially in the form of interest-bearing preferred stock.

The news was the latest development in the week-long financial story that has paired Dell CEO Michael Dell with California investment company Silver Lake Partners in seeking a buyout of the Round Rock-based personal computer maker.

None of the companies have commented on the reports.

In other news, a Dell shareholder has filed a class action lawsuit in state district court in Travis County that accuses Michael Dell and other Dell board members of breach of fiduciary trust because of reports that the buyout offer values the company's stock at between $13 and $14 a share.

The lawsuit was filed by Dallas lawyer Jamie McKey Friday on behalf of shareholder Heather Nelson and all other stockholders in her class.

The lawsuit alleges that Dell's efforts to pursue a leveraged buyout are "substantially unfair to the company's public shareholders and have caused and/or will cause significant injury to them." Analyst Patrick Moorhead with Moor Insights & Strategy said such lawsuits serve as a method to slow down a buyout so outside investors can determine whether the deal is in their interests.

Dell also has reportedly hired Evercore Partners Inc., a specialized investment company, which would solicit other potential offers for the company once Michael Dell and Silver Lake make their offer public. The so-called "go-shop" process is designed to discover whether there are better offers available for the company. The process is expected to be one of several steps the company takes to protect itself from shareholder lawsuits, Bloomberg news service reported.

Moorhead said Microsoft makes a natural partner in the deal because it has sizable amounts of cash and because it and Dell do so much business together. Most, but not all, of the computers that Dell presently sells come with at least some Microsoft software installed.

Microsoft would want to get involved, Moorhead said, as a way to protect its own business interests as Dell transforms its business going forward.

Even if Dell is potentially lessening its dependence on traditional personal computer sales, as analysts suggest, Microsoft could still want to have some influence on what sort of company Dell becomes and what software it is likely to use.

Microsoft, as the powerhouse of personal computer software, has invested in other various other companies including Facebook and Comcast.

The software company has also had past dealings with Silver Lake Partners. It bought Skype, the company offering software that enables low-cost long-distance video calls, from Silver Lake in 2011 for $8.5 billion. That came after Silver Lake and its partner bought the majority stake in Skype in 2009 from E-Bay Inc., and paid about $1.9 billion. Microsoft also worked with Silver Lake in its an unsuccessful bid to acquire Yahoo Inc. in late 2011.

Analysts have said one key issue for the Dell buyout might be finding a way for the new buyer to "repatriate" part of the company's cash hoard that is invested outside the United States.

Analyst Toni Sacconaghi of Bernstein Research has estimated that Dell Inc. has about $14.2 billion in cash and short-term investments "nearly all of which is offshore." Until now, Dell has kept its taxes low on that money by keeping it outside the U.S. The cash is offset by about $9 billion in debt.

Sacconaghi wrote last week that Del might want to use some of its cash hoard to pay down the estimated $15 billion debt that is expected to come with the buyout.

But repatriating a lot of that cash at once might subject it to an extra 30 percent or so in added taxes from the U.S. government, the analyst said, adding that Dell might prefer to gradually move more of its cash to the U.S. as it takes advantage of expected "future accounting losses" or possible changes in the tax law.

___ (c)2013 Austin American-Statesman, Texas Visit Austin American-Statesman, Texas at Distributed by MCT Information Services

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