Michael Dell wants to retool Dell into enterprise software and services business

Rival suitor Carl Icahn secures additional $5.2B in funding

In a pitch to shareholders, Michael Dell said he wants to retool Dell (Nasdaq: DELL) from a PC maker into an enterprise software and services business.

But Dell's enterprise software and services business controls less than 1 percent of the market and "faces ongoing integration and competitive risks," he told shareholders in a presentation filed with the Securities and Exchange Commission.

The Dell founder stressed that the firm's enterprise business is not growing fast enough to offset declines in the PC business. He wants to take Dell private in order to speed up the transition.

Michael Dell, along with Silver Lake Partners and other investors, is offering to pay shareholders $13.65 per share, or a total of $24.4 billion, for the struggling PC maker.

Michael Dell cited trends in cloud, mobility, virtualization and software-defined networking that are revolutionizing the data center, fueling a shift toward outsourced and cloud-based delivery models.

"Despite Dell's investments over several years, the company's transformation is still in its initial stages. Significant incremental investment is required to extend end-to-end IT solutions capabilities, expand sales coverage, compete in emerging markets, invest for growth in the PC and tablet business and simplify and enhance the customer experience," Dell said in his presentation.

To accomplish this transformation, Dell may need to undergo short-term pain, such as lower gross margins and increased operating and capital expenditures, resulting in lower earnings. This would be difficult to sustain as a public company, he stressed.

"As a private company owned by two financially strong equity investors, Dell will be better able to aggressively pursue its long-term business strategy and thereby increase the speed and likelihood of success of the transformation," Dell stressed.

Keeping the company public and adding more debt through a leveraged recapitalization, as rival bidders Carl Icahn and Southeastern Asset Management propose, would not allow the company to successfully transform, Dell argued.

Icahn and Southeastern are not calling it quits just yet. The two recently received a commitment from Jefferies & Co. to provide $5.2 billion in term loans, in addition to $1.6 billion in financing the investment bank has already committed to the plan, according to a report by Reuters. Icahn said he and his affiliates would pledge $2 billion "if necessary" to the Dell effort.

This new financing should help Icahn and Southeastern plug a $3.9 billion hole which Dell's board said the offer needs to do. Dell's shareholders are set for a July 18 vote on the Michael Dell and Sliver Lake bid.

For more:
- see Michael Dell's presentation
- read the Reuters report

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