Microsoft reportedly in talks to invest in Dell buyout [Updated]

Microsoft Corp. is reportedly in discussions to help finance a buyout of struggling computer maker Dell Inc.

According to the Wall Street Journal, which cited a person familiar with the talks, Microsoft’s investment “would likely be in the range of a couple of billion dollars.” CNBC reported a range of $1 billion to $3 billion, citing sources close to the matter.

Last week, rumors began swirling that Dell was considering a leveraged buyout and was in talks with private equity firms, with a deal that could be completed by the end of February. Michael Dell, the company’s founder and chief executive, has reportedly been negotiating with Silver Lake Partners, which has been seeking banks and other co-investors to help fund the deal, the Journal said.

Microsoft’s entry into the talks was unexpected. Still, Dell is one of the largest companies to make computers running Microsoft’s software.

[Updated at 12:30 p.m. Pacific time: In an email, a Microsoft spokesperson said the company did not “comment on rumors or speculation.”]

Shares of Dell were up 34 cents, or 2.7%, to $13.18 at 11:30 a.m. Pacific time. They have fallen 24% in the last year.

Shaw Wu, an analyst at Sterne Agee, said although going private “makes sense in taking the company out of the limelight and public scrutiny, we’re not sure it improves the company’s fundamental position.”

“Recent press reports point to a potential buyout by PE firms and founder Michael Dell for $13-$14 per share,” Wu wrote in a note to investors Tuesday. “While we believe a deal in that price range is possible, we believe a materially higher price is less likely. The reason is that attractive returns could prove difficult.”

CNBC reported that if Microsoft gets involved, its investment would be in the form of preferred security.

Dell has for years tried to transform itself as it runs into increased competition from Lenovo, Apple, Google, Acer, IBM, Samsung and HP. Currently about 45% to 50% of its revenue is estimated to come from desktop and notebook PCs, Wu said.

The company has $11.3 billion in cash and $5.3 billion in long-term debt.

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