Thursday, September 12, 2013

Michael Dell Gets His Pyrrhic Victory

Dell has been stumbling towards the finish line for some time, and today Dell's public shareholders get their payday and say sayonara to their company's long and checkered history as a public company.  Carl Icahn made a few quick millions, got lots of press, and generally muddied the waters and probably ensured that management would get its way.  "Activism" is not synonymous with better governance, nor is it a guarantee of superior share performance.

Who should feel good about today's announcement?   HP, its sales teams, and its shareholders for reasons we've discussed at length in a very popular post.

Michael Dell will own 75% of the post-transaction company, according to the Wall Street Journal.  If he is going to be hands on micro-managing the company like a founder, they're toast.  Assuming that he takes a Bill Gates approach and spends time on his philanthropic issues, then success will come down to his selection of a new management team.  Given that there has to be extensive cost-cutting, does Mr. Dell bring in a "Chainsaw Al" figure?  This doesn't seem to work well for technology companies.  While he's deciding, the best performers at Dell are up for grabs from HP, IBM, and start ups.  Any way you look at it, there's lots of risk.

"Dell is stuck," said Matt McIlwain, a managing director with venture-capital firm Madrona Venture Group, which invests in emerging business-tech companies. "They don't have the ear or the wallet of enterprises like H-P or IBM do, nor are they innovative enough to keep pace with emerging tech leaders like Amazon Web Services."
As Meg Whitman, the CEO of HP recently said of a large meeting with top CIOs, "You want us to win," meaning we CIOs need large, global, financially strong, innovative, customer-driven organizations that will help us succeed in our jobs.

There's nothing so far to indicate that the post-transaction Dell can achieve this status with their customers.

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