Elon Musk has a role model for privatizing a tech company: Michael Dell

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Michael Dell, President and CEO of Dell Technologies.

Matthew Busch/Bloomberg

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CEO Elon Musk tweeted four words – and a link to a government filing – to tell the world, or at least his nearly 82 million followers, that he wanted to take

Twitter

private: “I made an offer.”

Billionaires privatizing tech giants are rare, but not unprecedented. Michael Dell took his namesake company private in 2013. The deal may well give Twitter shareholders a taste of how a Musk takeover would play out.

Michael Dell made his pick when Dell stock wasn’t doing so well. The founder seemed to transform his computer manufacturer.

It’s hard to know for sure if Michael Dell really did a flip-flop, because tracking the stock price — and the acquisitions — over a decade is a difficult task. Dell, for example, bought an information storage and cloud computing company, EMC Corp., three years after its privatization. And EMC owned part of

VMWare

(symbol: VMW).

And, of course, there’s always the problem of not knowing the unknown – what would have happened if Michael Dell, or someone else, hadn’t stepped in. The stock could very well have continued to fall.

In the two years before Michael Dell talked about taking his company private, the stock lost about 25% of its value. The


Nasdaq Compound

increased by around 14% over the same period, from the end of 2010 to the end of 2012.

In 2013, according to the company’s website, Michael Dell and private equity firm Silver Lake took the company private. The company went public again at the end of 2018.

Things went well. A combination of EMC,

vmware

and

Dell Technologies

(DELL) appears to have returned about 10% per year on average over the past nine years, according to Barrons calculations. A comparable figure for the Nasdaq is around 15% per year on average.

It is a number that examines the values ​​of yesterday and today. The 10% figure would apply to private holders. The thing is, things have gotten better.

Dell’s example might be reason enough for Twitter’s board to agree to sell to Musk, who believes change needs to happen.

“I now realize that the business will not thrive or serve this societal imperative in its current form…Twitter must be transformed into a private company,” Musk wrote in a letter to Twitter’s board. “Twitter has extraordinary potential. I will unlock it.

The value unlocked by Musk would be realized by Musk – he would own the company if he succeeded in taking it private. Investors should wait to see how things go and if Musk succeeds, probably until Twitter becomes a publicly traded company again.

Shares of Twitter (TWTR) fell 0.2% to $45.76 in afternoon trading. Still, this price is well below the bid price of $54.20. The stock was below $40 before Musk’s purchase.

“The concept of taking a company private to effect fundamental change is not new,” said Drew Pascarella, a senior lecturer at Cornell University with a background in mergers and acquisitions. Barrons. Pascarella also sees the need for change. He described Twitter’s financial performance as lackluster.

There are still a lot of unknowns about Musk’s plan for Twitter. “Will moving from ads to a paid model create value? That’s question two. The first question is whether Elon is serious about it,” Pascarella added.

Investors will have to wait and see.

“It’s popcorn time as we expect plenty of twists and turns in the coming weeks as Twitter and Musk embark on the road to marriage,” Wedbush analyst Dan Ives wrote. , in a Friday note.

The popcorn looks okay.

Write to Al Root at [email protected]

Rebecca R. Santistevan