You know things are bad when HP is making fun of you. But that’s what’s happening to Dell today, after its decision to take the company private in a leveraged buyout.
HP just issued a statement warning Dell’s customers that Dell “faces an extended period of uncertainty and transition that will not be good for its customers.”
The statement is basically an invitation to customers to check out HP. “We believe Dell’s customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity.”
Carter Lusher, chief IT analyst at market researcher Ovum, put out a statement warning that Dell customers need to pay close attention to this deal. One challenge is that Dell has already been going through a “wrenching transition” from being a supplier of cheap PCs to being a vendor that can sell enterprise infrastructure equipment.
And now comes this leveraged buyout, which will only add to the confusion. “Ovum recommends that CIOs need to assess the risk to their infrastructure and put into place plans should Dell’s radical hardware, software and services shifts require changes to procurement plans,” Lusher says in the statement.
HP points out that Dell will now be saddled with debt, which will make it harder for Dell to invest in creating new products. And that’s true.
What Happens Next
For a good take on how the money works, check out Henry Blodget’s piece on Business Insider about how deals like this usually work when a private equity fund like Silver Lake Partners take over a company.
The gist is that the private equity guys usually take some of the company’s cash on hand (at Dell there’s a pool of $15 billion) and pay themselves a huge dividend, enough to cover all the money they’ve put into the deal, so from there on out they have no risk at all. (This is why an MIT professor once famously said, “Private equity is a little bit like sex. When it’s good, it’s very, very good. When it’s bad, it’s still pretty good.”)
They’ll use some of the remaining cash to pay down debt. Then they’ll start cutting employees and selling off parts of the business.
Maybe it seems nasty for HP to be pointing all this out, but hey, this is business. You can be sure every HP enterprise sales person is hitting the phones hard right now. And every big Dell account must be getting lit up with phone calls from HP and others.
Larry Dignan of ZDNet calls the HP statement a “rapid-fire FUD campaign,” and maybe it is. But Dignan also points out the “10 big unknowns” in the deal. And Dell’s uncertainty is a huge opportunity for others.
