Microsoft In Talks To Join Dell Buyout
January 23, 2013

Microsoft Mulls Purchasing A Large Stake In Dell Buyout

redOrbit Staff & Wire Reports - Your Universe Online

Microsoft is in discussions with private-equity firm Silver Lake Partners and Dell-founder Michael Dell to purchase a stake in the computer maker from public stockholders, according to multiple media reports citing sources familiar with the talks.

Silver Lake is one of the main sponsors in talks with Dell to help bring the company private.

Although Microsoft hasn´t yet committed to such a deal, the buyout reportedly includes $1 billion to $3 billion in mezzanine financing, CNBC reported on Tuesday.

The investment would mean Microsoft could hold one of the largest ownership interests in a privately held Dell.

According to the terms being discussed, Microsoft wouldn't be involved in Dell´s day-to-day operations, but Dell would agree to use Microsoft's Windows software on the majority of its devices, the Wall Street Journal reported on Wednesday.

A deal could come within a week, sources said, and would help strengthen the complicated attempt to take Dell private, in which four banks are expected to participate in a financing package worth around $15 billion.

The buyout group is expected to pay for the cash portion using a mix of Silver Lake's equity, Chief Executive Michael Dell's nearly 16% stake and potentially Dell's own cash and an investment from Microsoft, The Journal reported.

One person familiar with the discussions told CNBC that Microsoft would receive preferred security in exchange for its investment.

Such an arrangement would give Microsoft a stock-ownership stake in Dell, and would also include some of the benefits of being a debt holder, such as ensuring Microsoft gets repaid before other stockholders should Dell fail.

Given Microsoft´s deep pockets, which include $66.6 billion in cash and short-term investments as of September 30, making a $1 billion to $3 billion investment in Dell wouldn´t be difficult.

There is also a potential financial advantage for Microsoft, who could bring some of its overseas cash back to the U.S. tax free, due to a provision in the U.S. tax code that allows foreign subsidiaries of U.S. companies to invest in U.S. firms as long as they're not assuming a greater than 25% stake.

Microsoft CEO Steve Ballmer has a long-standing personal and professional relationship with Mr. Dell, who is expected to contribute his stake in the company's stock as part of the proposed buyout.

"I suspect it is not about the financial income this might generate for Microsoft as much as helping Dell to remain in a long term competitive position and good partner to Microsoft," Nomura Securities Rick Sherlund told The Journal.

Microsoft´s connection with Silver Lake dates back to at least to May 2011, when the private-equity firm agreed to sell Skype to Microsoft for $8.5 billion. Silver Lake and CPPIB were among the co-owners of Skype.

Silver Lake had invested about $1 billion in Skype, but recouped nearly three times that amount from the sale.

Shares of Microsoft´s stock fell 0.4 percent on Tuesday, closing at $27.15, while shares of Dell´s stock rose 2%, closing at $13.12.