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Microsoft's $2B loan to Dell comes with strings

Gregg Keizer | May 7, 2013
As part of Microsoft's loan of $2 billion to a group trying to buy PC maker Dell, the two companies must modify the payment terms of Dell's current agreements with Microsoft, a document filed with U.S. regulators said.

Other possibilities include Microsoft pressuring Dell to pledge support for Windows RT, the tablet-only operating system launched last October. In fact, Dell recently backed Windows RT, one of the few OEMs to do so, saying it remained committed to the OS despite its shaky start and the plunging prices of tablets.

Previously, Microsoft has declined to discuss details of the $2 billion loan or answer questions about the deal. In February, the company issued a statement saying, "Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future. We will continue to look for opportunities to support partners who are committed to innovating and driving business for their devices and services built on the Microsoft platform."

Assuming Michael Dell and Silver Lake buy Dell, the company would certainly stay in the tablet market, including those running Windows.

Reports submitted to Dell's board of directors by the Boston Consulting Group, a management consulting firm the board asked to help it evaluate the buyout offer, built their forecasts on the assumption that while Dell would continue to lose share in global PC sales, it should be able to generate revenue of $1.1 billion in fiscal 2016 by grabbing 9% of the U.S. Windows tablet market, and 4.5% of the emerging markets' share.

Microsoft's $2 billion -- which will purchase notes issued by Dell that pay 7.35% in interest -- played a crucial role in the buyout plan, according to other filings with the SEC. Late last year, Silver Lake threatened to bow out of the deal unless it was allowed to talk to Microsoft about chipping in. In less than two weeks, Microsoft's board gave the go-ahead to invest $2 billion.

Silver Lake and Microsoft have a history of working together. In 2011, the private equity firm brokered the sale of Skype to Microsoft for $8.5 billion, and that same year made a failed bid for Yahoo that reportedly included Microsoft as one of several partners.

More information about the agreements between Microsoft and Dell may come to light in later SEC filings either as the deal nears execution or when it's finalized, assuming stockholders agree to the buyout.

The date of the stockholder vote has not been set. Last Thursday, Dell submitted a preliminary notice of the meeting, but the date and time were left blank.


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