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Dell Thinks the PC Is Dead, Too

By Evan Niu, CFA - Apr 2, 2013 at 1:45AM

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Risk factors are meant to be scary, but Dell's simply trying to terrify public investors into letting it go private.

PC giant Dell (DELL.DL) wants to go private. This we know. We also know that the company has garnered alternative proposals from Blackstone and Carl Icahn, both of which include higher per-share offers to investors that may be interested in selling their shares.

The board initially said the alternative proposals could potentially be superior, but it wasn't for sure as a special committee was still reviewing all the tidbits before making such a claim. Both rival bids are structured so that Dell remains a public company, so that public investors can potentially benefit from a possible turnaround.

Well, Dell's now trying to scare off public investors. Dell thinks the PC is dead, too.

In a recent proxy statement, Dell explains why going private is the best scenario to put public shareholders out of their misery. The company lists out a plethora of risk factors it faces, and while risk factors are meant to be scary, the filing is a gloomy acknowledgment that the PC market ain't what it used to be.

Dell believes that the leveraged recapitalizations proposed by Blackstone and Icahn create too much risk for public shareholders. Even though both entities are offering to buy out some shareholders at prices higher than Dell's initial $13.65 offer, the company believes that inevitably the offers are "unlikely to result in an aggregate value exceeding the $13.65 per share" after everything is said and done. That's why shareholders should just go ahead and agree to the original deal that takes Dell totally private, the company maintains.

The company expresses little confidence in Microsoft (MSFT -1.32%) Windows 8, even though Microsoft has committed to help finance the deal with $2 billion in unsecured subordinated notes.

Dell concedes that it is facing falling revenues in the PC market due to "lengthening replacement cycles, the uncertain adoption of the Windows 8 operating system, unexpected slowdowns in enterprise Windows 7 upgrades and the increasing substitution of smartphones and tablets for PCs," among other things.

Industry analysts continue to reduce forecasts on PC units and Dell's revenue has underperformed its own expectations in "for each of its prior seven fiscal quarters." Meanwhile, the company faces downward pricing pressure due to commoditization, and Dell admits it's missed out on mobile, acknowledging "the increasing importance of the smartphone and tablet markets in which the Company currently has very little presence."

Translation: the PC is dead, so let Dell go private.

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