corpoRTE RESTRUCTURING OD DELL COMPUTERS

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1.Corporate restructuring

Corporate restructuring is the process of redesigning one or more aspects of a

company. The process of reorganizing a company may be implemented due to

a number of different factors, such as positioning the company to be more

competitive, survive a currently adverse economic climate, or poise

thecorporationto move in an entirely new direction. Here are some examples

of why corporate restructuring may take place and what it can mean for the

company.

Restructuring a corporate entity is often a necessity when the company has

grown to the point that the original structure can no longer efficiently manage

the output and general interests of the company. For example, a corporate

restructuring may call for spinning off some departments into subsidiaries as a

means of creating a more effective management model as well as taking

advantage of tax breaks that would allow the corporation to divert more

revenue to the production process. In this scenario, the restructuring is seen as

a positive sign of growth of the company and is often welcome by those who

wish to see the corporation gain a larger market share.

1.1.Financial restructuring

However,financial restructuringmay take place in response to a drop in sales,

due to a sluggish economy or temporary concerns about the economy in

general. When this happens, the corporation may need to reorder finances as

a means of keeping the company operational through this rough time. Costs

may be cut by combining divisions or departments, reassigning responsibilities

and eliminating personnel, or scaling back production at various facilitiesowned by the company. With this type of corporate restructuring, the focus is

on survival in a difficult market rather than on expanding the company to meet

growing consumer demand.

Corporate restructuring may take place as a result of the acquisition of the

company by new owners. The acquisition may be in the form of aleveraged

buyout,a hostile takeover, or a mergerof some type that keeps the company

intact as a subsidiary of the controlling corporation. When the restructuring is

due to a hostile takeover, corporate raiders often implement a dismantling of

the company, selling off properties and other assets in order to make a profit
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from the buyout. What remains after this restructuring may be a smaller entity

that can continue to function, albeit not at the level possible before the

takeover took place.

In general, the idea of corporate restructuring is to allow the company to

continue functioning in some manner. Even when corporate raiders break up

the company and leave behind a shell of the original structure, there is still

usually the hope that what remains can function well enough for a new buyer

to purchase the diminished corporation and return it to profitability.

1.3Methods

Corporate restructuring is typically designed to manage corporate debts,

improve profitability and efficiency, or to incorporate other

firms.Bankruptcyand negotiations with creditors are commonly used to

reduce the burden of debt carried by a company. Changes to the structure of a

corporate workforce or to the organizational system used by a firm can

improve profitability. Mergers and takeovers allow a firm to gain control over

other companies.

A large debt burden can greatly hinder corporate operations. One variety of

corporate restructuring involves the modification of some or all ofacorporations debts. This may involve securing new loans at more favorable

terms or negotiations with creditors. In some cases, a corporatebondissue

may be used to restructure debts.

In other cases, bankruptcy can be used as a tool for corporate restructuring. If

a business is burdened by unsustainable levels of debt or faced with other

serious difficulties, management may elect to enterbankruptcy proceedings.

The specific laws governing this process vary, but bankruptcy typically allows a

corporation to renegotiate some of its financial obligations and often involves

giving bondholders an equity stake in a restructured firm.

Some types of corporate restructuring are used to improve the operational

efficiency of a company. It is sometimes advantageous for a firm to

reducepayroll, and a program of targeted layoffs may be part of a

restructuring drive. In other cases, the relationships between different units

within a firm may need to be reconfigured in order to improve efficiency andincrease profitability.
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2.Different Methods

There are several restructuring methods: doing an outright sell-off,

doing an equity carve-out, spinning off a unit to existing shareholders

or issuing tracking stock. Each has advantages and disadvantages for

companies and investors. All of these deals are quite complex.

Sell-Offs

A sell-off, also known as adivestiture,is the outright sale of a

company subsidiary. Normally, sell-offs are done because the

subsidiary doesn't fit into the parent company's core strategy. The

market may beundervaluing the combined businesses due to a lack of

synergy between the parent and subsidiary. As a result, management

and the board decide that the subsidiary is better off under different

ownership.

Equity Carve-Outs

More and more companies are using equity carve-outs to

boostshareholder value.A parent firm makes a subsidiary public

through aninitial public offering(IPO) of shares, amounting to a

partial sell-off. A new publicly-listed company is created, but the

parent keeps a controlling stake in the newly traded subsidiary.

A carve-out is a strategic avenue a parent firm may take when one of

its subsidiaries is growing faster and carrying higher valuations than

other businesses owned by the parent. A carve-out generates cash

because shares in the subsidiary are sold to the public, but the issue

also unlocks the value of the subsidiary unit and enhances the parent's

shareholder value.

Spinoffs

A spinoff occurs when a subsidiary becomes an independent entity.

The parent firm distributes shares of the subsidiary to its shareholders

through astock dividend.Since this transaction is a dividend

distribution, no cash is generated. Thus, spinoffs are unlikely to be
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used when a firm needs to finance growth or deals. Like the carve-out,

the subsidiary becomes a separate legal entity with a distinct

management and board.

Tracking StockA tracking stock is a special type of stock issued by a publicly held

company to track the value of one segment of that company. The

stock allows the different segments of the company to be valued

differently by investors.

Still, shareholders need to remember that tracking stocks areclass B,

meaning they don't grant shareholders the same voting rights as those

of the main stock. Each share of tracking stock may have only a halfor a quarter of a vote. In rare cases, holders of tracking stock have no

vote at all.

Strategies of corporate raiders

Corporate raiders, who might also be referred to as activist investors, seek to

maximize shareholder value for investors. A raider's personal interest is ofteninvolved as this investor may attempt to generate sizable profits in the process

often at the disdain of corporate executives. Activist investors typically abide

by any regulation in place in a region and subsequently the targets of activist

investor activities are often forced to fight back with financial and other

available resources.

Any aggressive activity by corporate raiders must typically be preceded by an

activist investor obtaining equity interest in atarget company. In order to

begin having influence in the direction of a business, investors must own aminimum stake in that company in equitysharesbased on regional laws. As

activist investors' increase ownership in a stock, the buying activity is

documented in regulatory filings, so the public can theoretically recognize

when some activist activity is brewing.

Investors considered corporate raiders typically have access to large sums of

money. Some of these individuals manage assets for clients. The strategy of

the investment firm, such as ahedge fund, could be to

identifycorporationsthat do not appear to be delivering a stock's profit
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potential and attempting to turn that business around to benefit clients and

the activist investor.

A common strategy is to seek to obtain seats on a company's board of

directors, which gives corporate raiders a voice on major company events. This

strategy is not always successful, as in order to gain a place on a company's

board, investors need to win the approval of shareholders. Corporate raiders

often go to great lengths using different outlets, such as the media, to

communicate to shareholders why a change is needed.

The desires of corporate raiders are often in stark contrast to the direction thatcorporate executives seek to take a business. This is largely the catalyst for

contempt that often exists between the parties. A common strategy for

corporate raiders is to step in and attempt to interfere with a plan that

management has disclosed, such as a merger or acquisition. A strategy could

be for the activist investor himself or herself to present a bid to buy the

business that shareholders cannot refuse.

One way that activists investors interfere could be to rally investor support for

a proxy fight with corporate executives. A company merger could have all themerits in the world, but it needs shareholder support to become reality. If

enough shareholders side with acorporate raiderwho opposes a merger,

these individuals will not vote in support of the deal, which could prevent the

transaction from occurring and grant the activist investor success.
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Risks during corporate restructuring

A corporate restructure is often associated with a failing business model or

major job cuts. While the restructure may help the company move forward and

improve business, the process comes with some fallout for both the company

and the employees. Anticipating these disadvantages and potential difficulties

helps you deal with them to reduce the negative impact.

Employee Uncertainty

Restructuring often causes employees to panic and wonder how the changeswill affect their job security. When the news gets out that the company isrestructuring, some employees may begin looking for new employment. Thestress of the restructuring sometimes takes away from the staff's focus on theiractual work. Employees become even more worried if the company isn'tforthcoming with details about the restructure. While you might not have the

option of sharing all of the details ahead of time, a sense of transparency thatallows employees to have some idea of what's happening may put youremployees at ease.

Investor ReactionsDepending on the size and funding of your company, investor reactions aresometimes negative to a restructuring situation. If your investors oppose therestructure or fear they'll lose money, you now have another issue to handleduring the process. For companies that are publicly traded, a negative reactionto the restructure can result in dropping stock prices. Educating investors on the

specifics of the restructuring plans and keeping them informed may help reducetheir concerns.

Loss of Assets

In some cases, the corporate restructure involves downsizing the workforce,facilities or product lines. This means you're forced to choose the employeeswho you'll let go. With the employees who leave, you also lose the experience,skills and knowledge of company projects that those staff members possess.Prioritizing the staffing and facility needs going forward helps you decide how

to handle the loss of various assets.


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Dell

Dell Inc.(formerly Dell Computer Corporation) is an

Americanmultinational computer technology company based inRound Rock,

Texas,United States, that develops, sells, repairs and supports computers and

related products and services.Bearing the name of its founder,Michael Dell,

the company is one of the largest technological corporations in the world,

employing more than 103,300 people worldwide. Dell is listed at number 51 in

theFortune 500list. In 2012 it was the third largest PC vendor in the world

afterHP andLenovo.

Dell sells personal computers,servers,data storage devices,network

switches,software, computerperipherals,HDTVs, cameras, printers, MP3

players and also electronics built by other manufacturers. The company is well

known for its innovations insupply chain management andelectronic

commerce, particularly its direct-sales model and its "build-to-order" or

"configure to order" approach to manufacturingdelivering individual PCs

configured to customer specifications. Until a few years ago Dell was mainly a

pure hardware vendor, but with the acquisition ofPerot Systems Dell enteredthe market for IT services and additional acquisitions in storage and

networking systems allow the company to offer complete solutions for

enterprise customers compare to their original portfolio of computers only

Dell is the sixth largest company in Texas by total revenue, according

toFortunemagazine. It is the second largest non-oil company in Texas

behindAT&Tand the largest company in theGreater Austin area.

On February 5, 2013, Dell announced that founderMichael Dell wanted to take

the company private in a leveraged buyout, with financing fromSilver LakePartners andMicrosoft.On September 12, 2013, the buyout was approved by

a majority of the shareholders.

Dell traces its origins to 1984, whenMichael Dell created PC's Limitedwhile a

student of theUniversity of Texas at Austin. The dorm-room headquartered

company soldIBM PC-compatible computers built from stock components. Dell

dropped out of school to focus full-time on his fledgling business, after getting

about $300,000 in expansion-capital from his family.
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logo for Dell until 1989

In 1985, the company produced the first computer of its own design, the Turbo

PC, which sold for $795. PC's Limited advertised its systems in national

computer magazines for sale directly to consumers and custom assembled

each ordered unit according to a selection of options. Thecompanygrossed more than $73 million in its first year of operation.

The company changed its name to Dell Computer Corporation in 1988 and

began expanding globally. In June 1988, Dell's market capitalization grew by

$30 million to $80 million from its June 22initial public offering of 3.5 million

shares at $8.50 a share. In 1992,Fortunemagazine included Dell Computer

Corporation in its list of the world's500 largest companies, making Michael

Dell the youngest CEO of a Fortune 500 company ever.

In 1993, to complement its own direct sales channel, Dell planned to sell PCs atbig-box retail outlets such as Wal-Mart, which would have brought in an

additional $125 million in annual revenue. However, Bain consultantKevin

Rollins persuaded Michael Dell to pull out of these deals, believing they would

be money losers in the long run.
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Growth in 1990s and early 2000s

From 1997 to 2004, Dell enjoyed steady growth and it gained market share

from competitors even during industry slumps. Dell attained and maintained

the #1 rating in PC reliability and customer service/technical support,according to Consumer Reports, year after year, during the mid-to-late 90s

through 2001 right before Windows XPwas released.

In 1996, Dell began selling computers through its website, and in 2002, it

expanded its product line to include televisions,handhelds, digital audio

players, andprinters.Dell's firstacquisitionoccurred in 1999 with the purchase

of ConvergeNet Technologies.

Dell surpassed Compaq to become the largest PC manufacturer in 1999. In

2002, when Compaq merged withHewlett Packard(the 4th place PC maker),the combined Hewlett Packard took the top spot but struggled and Dell soon

regained its lead. Dell grew the fastest in the early 2000s. In 2003, the

company was rebranded as simply "Dell Inc." to recognize the company's

expansion beyond computers.

In 2004, Michael Dell resigned as CEO while retaining the position of

Chairman, handing the CEO title toKevin Rollinswho had been President and

COO since 2001. Under Rollins, Dell began to loosen its ties to Microsoft and

Intel, the two companies responsible for Dell's dominance in the PC business.

During that time, Dell acquiredAlienware,which introduced several new itemsto Dell products, includingAMDmicroprocessors. To prevent cross-market

products, Dell continues to run Alienware as a separate entity, but still a wholly

owned subsidiary.
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Competition

Dell's major competitors includeHewlett-

Packard (HP),Acer,Fujitsu,Toshiba,Gateway,Sony,Asus,Lenovo,IBM,MSI,Sa

msung andApple.Dell and its subsidiary,Alienware,compete in the enthusiastmarket againstAVADirect,Falcon Northwest,VoodooPC (a subsidiary of HP),

and other manufacturers. In the second quarter of 2006, Dell had between

18% and 19% share of the worldwide personal computer market, compared to

HP with roughly 15%.

In late 2006, Dell lost its lead in the PC-business to Hewlett-Packard.

BothGartner andIDC estimated that in the third quarter of 2006, HP shipped

more unitsworldwide than Dell did. Dell's 3.6% growth paled in comparison to

HP's 15% growth during the same period. The problem got worse in the fourth

quarter, when Gartner estimated that Dell PC shipments declined 8.9% (versus

HP's 23.9% growth). As a result, at the end of 2006 Dell's overall PC market-

share stood at 13.9% (versus HP's 17.4%).

IDC reported that Dell lost more server market share than any of the top four

competitors in that arena. IDC's Q4 2006 estimates show Dell's share of the

server market at 8.1%, down from 9.5% in the previous year. This represents a

8.8% loss year-over-year, primarily to competitorsEMC andIBM.
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Dell partner program

In late 2007, Dell Inc. announced that it planned to expand its program

tovalue-added resellers(VARs), giving it the official name of "Dell PartnerDirect" and a new Website

Partnership with EMC

The Dell/EMC brand applies solely to products that result from Dell's

partnership withEMC CorporationIn some cases, Dell and EMC jointly design

such products. Other cases involve EMC products that Dell supportsgenerally

midrange storage systems, such asfibre channelandiSCSIstorage area

networks.The relationship also promotes and sells OEM versions of backup,

recovery, replication and archiving software. On December 9, 2008, Dell and

EMC announced the multi-year extension, through 2013, of their strategic

partnership that began in 2001. In addition, Dell plans to expand its product

line-up by adding the EMCCelerraNX4 storage system to the portfolio of

Dell/EMC family of networked storage systems, as well as partnering on a new

line ofde-duplicationproducts as part of its TierDisk family ofdata-storage

devices.

On October 17, 2011, Dell announced officially discontinued reselling all EMCstorage products, this put end to 10 years of partnership.
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Rollins and disappointments

However in 2005, while earnings and sales continued to rise, sales growth

slowed considerably, and the company stock lost 25% of its value that year. By

June 2006, the stock traded around $25 USD which was 40% down from July2005the high-water mark of the company in the post-dotcom era.

The slowing sales growth has been attributed to the maturing PC market,

which constituted 66% of Dell's sales, and analysts suggested that Dell needed

to make inroads into non-PC businesses segments such as storage, services and

servers. Dell's price advantage was tied to its ultra-lean manufacturing for

desktop PCs, however this became less important as savings became harder to

find inside the company's supply chain, and as competitors such as Hewlett-

Packard and Acer made their PC manufacturing operations more efficient.

Throughout the entire PC industry, declines in prices along with commensurateincreases in performance meant that Dell had fewer opportunities to upsell to

their customers (a lucrative strategy of encouraging buyers to upgrade the

processor or memory). As a result the company was selling a greater

proportion of inexpensive PCs than before, which eroded profit margins. The

laptop segment had become the fastest growing of the PC market, but Dell

produced low-cost notebooks in China like other PC manufacturers which

eliminated Dell's manufacturing cost advantages. CNEThas suggested that Dell

was getting trapped in the increasing commoditization of high volume low

margin computers, which prevented it from offering more exciting devices that

consumers demanded. There has also been a decline in consumers purchasing

PCs through the Web or on the phone, as increasing numbers were visiting

consumer electronics retail stores to try out the devices first. The lack of a

retail presence stymied Dell's attempts to offer consumer electronics such as

flat-panel TVs and MP3 players.

Dell had a reputation as a company that relied upon supply chain efficiencies

to sell established technologies at low prices, instead of being an innovator. By

the mid-2000s many analysts were looking to innovating companies as thenext source of growth in the technology sector. Dell's low spending on R&D

relative to its revenue (compared toIBM,Hewlett Packard, andApple Inc.)

which worked well in the commoditized PC marketprevented it from making

inroads into more lucrative segments, such as MP3 players. Increasing

spending on R&D would have cut into the operating margins that the company

emphasized.

Dell's reputation for poor customer service, since 2002, which was exacerbated

as it moved call centres offshore and as its growth outstripped its technicalsupport infrastructure, came under increasing scrutiny on the Web.
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Corporate restructuring of dell

Dell goes private

Personal computer maker Dell is no longer to be a publicly traded company.

The worlds third-biggest maker of PCs plans to buy back all its shares,spending the equivalent of 18 billion euros.

Founder and Chief Executive Michael Dell said by going private he will be ableto press ahead with plans to turn the company around by diversifying away

from personal computers.

The money will come from Michael Dell himself, private equity firm SilverLake, and a two billion dollar loan from Microsoft.

The company, once the worlds top PC maker, is struggling to defend its market

share.

Analysts say the restructuring may entail job cuts and more costly acquisitions.

Rivals were quick to dismiss Dells move as disruptive, and one that will not be

good for customers.

The number one PC maker Hewlett Packard said: Dell has a very tough roadahead.

Dell announced plans Tuesday to go private in a deal that is worth $24.4 billion.

In a partnership involving private equity firm Silver Lake

Partners, Microsoft (MSFT,Fortune 500) and company founder Michael Dell,

the group hopes to buy the computer maker for $13.65 a share. That's slightly

higher than where the stock closed Monday but is 25% higher than where Dell

was trading before rumors of the buyout began to surface in mid-January.
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If successful, the Dell deal would be one of the largest leveraged buyouts in

history. Shareholders have to approve the deal before it becomes official.

The once mighty Dell has struggled to compete in an ailing and increasingly

competitive PC market. Dell(DELL,Fortune 500)lost a third of its marketvalue in 2012 and failed to keep up with rivals like Apple(AAPL,Fortune

500)and Samsung, both of which have done a much better job adapting to the

"post-PC" landscape with tablets and smartphones.

Related story: Fortune's Dan Primack on the Dell deal

Dell has been trying to reduce its reliance on the PC market and shift to hot

businesses like cloud computing, storage and corporate software. About half of

Dell's sales come directly from PCs, and another 20% comes from PC

peripherals like monitors, keyboards, printers, computer software and services.

But the problem for Dell is that all of its competition is trying to do the same

thing.

"It seems to me that the toughest issue for HP (HPQ,Fortune

500), Intel (INTC,Fortune 500), Microsoft and Dell is that they are so reliant

on the desktop," said Dan Morgan, a portfolio manager with Synovus. "I thinkall these companies have been struggling to duplicate the success

that IBM (IBM,Fortune 500) has had in regards to focusing away from the

desktop."
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2013 buyout

After several weeks of rumors, which started around January 11, 2013, Dell

announced on February 5, 2013 that it had struck a $24.4 billionleveraged

buyoutdeal, that would have delisted its shares from the NASDAQ and HongKong Stock Exchange and taken it private. Michael DellandSilver Lake

Partners,aided by a $2 billion loan fromMicrosoft,will buy the public shares at

$13.65 a piece. The $24.4 billion buyout is the largest leveraged buyout backed

by private equity since the2007 financial crisis.It is also the largest technology

buyout ever, surpassing the 2006 buyout ofFreescale Semiconductorfor $17.5

billion. Dell founder Michael Dell said of the buyout "I believe this transaction

will open an exciting new chapter for Dell, our customers and team

members". Dell rivalLenovoreacted to the buyout, saying "the financial

actions of some of our traditional competitors will not substantially change ouroutlook". Meanwhile, HP stated that Dell's traditional product innovation

might suffer as a result of the buyout. The buyout price represents a small

premium over the current stock price, and much lower than the stock's all-time

high of $65 USD per share reached during the dotcom bubble in 2000, as well

as its July 2005 price of $40 USD which was the high-water mark of the post-

dotcom era. Several major institutional shareholders have voiced opposition,

including Southeastern Asset Management andMason Hawkins.Michael Dell

owns the largest single share of the company's stock and was part of

negotiations to go private, however he is offering only $750 million of his ownmoney for a deal that will involve almost $16 billion in new debt. T. Rowe

Price,which has the third largest holding, also objected to the low price of the

proposal. Southeastern Asset Management, the largest shareholder of Dell

stock with about 8.5%, is opposed to the deal at the per share price of $13.50

to $13.75 as they value the company at $23.72 a share. Southeastern also

complained that the overseas funds aren't offered to sweeten the buyout

offer.

Typical leveraged buyouts have been viewed as tools of vulture capitalists inbreaking up firms and layoffs, or ways to bring greater efficiency and new

management to troubled enterprises. However the Dell leveraged buyout is

unusual as the driving force behind the deal, Michael Dell, was already the

Chairman and CEO, founder, and largest shareholder in the firm. Unlike most

leveraged buyouts that aim to wrest management control away from

incumbents, the Dell deal intends to keep the same leadership team in place.

The main aim of Dell's leveraged buyout is to rejigger the companys financial

structure.
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Objectives

System; Macintosh; Customer relationship management; IBM Pedagogical

Objectives:

To discuss the idea of Direct Business Model which revolutionised theglobal PC market by eliminating all kinds of middleman and by supplying

customised PCs to customers

To discuss in details about trends and patterns of US and global PCindustry

To discuss the strategy adopted by Dell to become the market leader inhousehold PC segment

To discuss how the companys market share was eroded and the companystarted to face the heat due to aggressive marketing strategy of its

competitors

To discuss the companys decision to enter into consumer electronicssegment, strategy adopted by the company and apprehension among the

analysts

To discuss whether the companys decision to enter into the consumerelectronics market will help the company to turnaround or not.

Keywords : Dell Inc; Apple; Hewlett Packard; Direct business model;

Workforce alignment; Consumer electronics; Original equipment

manufacturer; Fortune 500; Restructuring / Turnaround Strategies Case

Study; Media-PC (personal computer); Microsoft; Wintel; Media Centre


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Buyout win of dell

(Reuters) - MichaelDellclinched shareholders' approval on Thursday for his

$25 billion offer to buy and takeDell Incprivate, ending months of bitter

conflict with the company's largest investors and removing the uncertainty

shrouding the world's No. 3 PC maker.

The company plans to invest in the personal computer and tabletmarkets, in

expanding sales coverage, and in growing its distribution network, founder and

Chief Executive MichaelDellsaid in a conference call after the shareholder

vote.

End-user computing, defined as devices such as PCs and tablets, remains an

important focus for the company despite the rapid decline of the global

personal computer market, the CEO told reporters briefly, without elaborating

or taking questions.

A "significant incremental investment" is required to turnaround the company,

and having two strong private investors will aid the restructuring, he added.

Shareholders cast their votes at a special meeting on Thursday morning in

Round Rock, Texas. Based on preliminary results, the buyout has secured their

go-ahead and the deal is expected to close before the end of the fiscal thirdquarter.

The company's pace of internal transformation should now quicken. Sealing

the deal should also assuage customers who have grown wary of the

company's direction during a very public battle that pit major Wall Street

players Icahn, Southeastern Asset Management and T. Rowe Price against the

CEO.

"We still have a long way to go and many challenges to meet," the company

founder said. "But under a new private company structure, we will have theflexibility to accelerate our strategy and pursue both organic and inorganic

investment without the scrutiny, quarterly targets and other limitations of

operating as a public company."

Asked if layoffs were in the offing, CFO Brian Gladden said there would be a

company "re-alignment," without elaborating.

Dell, who founded the company from a college dorm-room in 1984, and

partner Silver Lake fought for months to convince skeptical investors his offer

was the best option. This week, he gained the upper hand after one of his
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staunchest opponents, activist investor Carl Icahn, bowed out of the conflict

because he said it was "impossible to win.

Michael Dell has argued that revamping his company into a provider of

enterprise computing services in the mold of IBM is a complex undertaking

best performed outside the spotlight of publicmarkets.

"Once the deal is consummated, they can move on and close some of the large

infrastructure deals they've been working on. I do think there's been a bit of a

pause," said Cross Research analyst Shannon Cross.

Dell reported a 72 percent slide in quarterlyearningslast month, reflecting

price cuts intended to soothe nervous customers and spearhead a foray into

the enterprise market.

It remains to be seen if Dell can build its storage, networkingandsoftwareportfolios to vie with Hewlett Packard Co and others. Some

analysts think it may be too late, since a large swathe of the corporate market

has been locked up by IBM and HP.

But with the PC market expected to shrink again in 2013, investors say the

company has little choice.

Dell's stock was flat at $13.85 in the afternoon.

GUTTED

Asoka Kodali, a stockholder from Austin who owns 3,000 shares, said he voted

for the Michael Dell-Silver Lake buyout even though he would lose money.

"I don't like the offer but I voted for it this time as I don't see a future for Dell

as a public company," he said before voting began. "Instead of having my

money blocked there, I would rather take the loss and use it offset other

(stock) gains."

Dell Incin recent years has become one of the more prominent victims of PC

market erosion from mobile devices like Apple Inc'siPad.

Its fortunes remain closely tied to sales of the venerable personal computer,

despite $13 billion in acquisitions since 2008 to expand into everything from

software to networking. PC sales, which have been shrinking for the last three

years, still yield half of its revenue.

Global PC sales are expected to fall 7 percent this year and 4.5 percent next

year, according to analysts at CLSA.
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Voting on the buyout had been postponed three times as Michael Dell and the

company's board scrambled to garner enough votes. But on August 2, Michael

Dell raised his offer price and tacked on a special-dividend sweetener.

The final agreement includes a 13 cent special dividend on top of a 10-cent

increase in the sale price to $13.75 a share.

Vince Dungan, a shareholder from Elgin, Texas, said he voted against the deal

as he will swallow a loss if he takes the offer. Dungan said he bought Dell

shares in the $55-$65 range and would lose about $25,000 if the buyout goes

through.

"If Michael Dell can turn it around as a private company, why can't he do it as a

public company?" Dungan asked.


20/32


21/32

21

turnaround. Seven of his ten direct reports are new to their posts, including

veterans from General Electric (GE), IBM, and Motorola (MOT). The company

has been restructured to sharpen the focus on customers. And it is branching

out into services, software, and new hardware categories, including

smartphones and tablet-like devices. Sources say Dell is even preparing to add

social networking features and music and video services to Dell.com. The old

Dell is history, the CEO vows, and a new one is just beginning. "We're not

trying to become like our competitors," he says. "We're digging our own

path."

It's not at all clear Dell can pull this off. The old Dell succeeded because of its

mastery of logistics and the supply chain, allowing it to sell computers directlyto customers at prices no rival could match. The new Dell requires completely

different skillsflexibility, customer focus, and innovation. Leadership experts

say changing a management approach is one of the toughest undertakings in

business, particularly for a founder who has had early success. "He's got

tremendous challenges ahead of him, because he's in an industry that itself is

undergoing rapid, sweeping change," says Warren Bennis, chairman of the

Leadership Institute at the University of Southern California Marshall School of

Business.

A SLOW RESTARTInvestors have given Dell virtually no credit for his work so

far. The company's stock is off about 40% since the start of 2007, while Apple

shares have more than doubled and HP's have risen about 10%. David Eiswert,

manager of T. Rowe Price's Global Technology Fund, sold his last 140,000 Dell

shares last fall because he thinks Dell has too many rivals in its PC business and

doesn't spend enough on research and development to create stand-outtechnology. Dell is "saying, 'Don't worry, we have a lot of ammo,' " says

Eiswert. "The problem is the invading armies have a lot more troops and a lot

more ammo."

Dell is convinced he can prove the skeptics wrong. He understands that only a

handful of former chiefs have returned to lead their companies to brighter

futures. For every Steve Jobs there's a Jerry Yang, the Yahoo! (YHOO) co-

founder who struggled after retaking the helm. Yet for Dell, this is an


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opportunity to prove himself, to show he not only can launch a great business

but revive a struggling one. "What you do is walk outside the building, you

pretend you're the new guy, and walk back in," he says. "You force yourself to

do what you need to do."

He has already pulled off a more extensive overhaul than most outsiders

realize. He still has a long way to go, but insiders say the CEO is as driven as

ever, back to working the kind of hours he did when he started the company.

Ronald G. Garriques, head of Dell's consumer division, fields questions from his

boss after midnight these days. "I get these e-mails from him saying, 'Hey, Ron,

I was on this Web site, and wouldn't it be really cool if our product does this or

does that?' " he says. Roger L. Kay, founder of researcher EndpointTechnologies Associates, got a call from Dell one weekend late last year. "He

wanted to know if I knew any people who might be good as head of

marketing," says Kay. "On a Saturday when I'm repairing my garage door, he's

making calls to analysts."

Dell hasn't had any time to waste since beginning his second stint as chief

executive. It was January 2007 when Dell told his board he thought it was time

to replace Kevin B. Rollins, his hand-picked successor. With the company losing

share in the PC market and struggling with an investigation into its accounting

practices, the directors agreed. Dell told them he was ready to step into his old

job, but before they accepted, Donald J. Carty, the longest-serving director,

stopped into Dell's office for a frank, one-on-one talk. "This is not going to be a

stopgap thing," he cautioned the founder. "You're going to have to take the

reins for a very long time." Dell pledged his commitment. "I'm going to care

about this company when I'm dead," he told Carty. Dell's return wasannounced Jan. 31.

The business Dell took over was floundering. Corporate PC sales were slowing,

while HP under the direction of CEO Mark V. Hurd was pulling consumers into

storesand away from Dellwith its stylish notebook PC designs. Dell

suffered the consequences. It lost its position as the largest PC maker in the

world to HP, and profits tumbled. Dell's net income dropped 28%, to $2.6

billion, for the fiscal year ending Feb. 2, 2007, while revenue inched up 3%, to


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$57.4 billion.

Dell's first move was to try to stop the bleeding in the consumer business. The

head of the division left in February, and Dell started looking for a replacement

by working his jam-packed Rolodex. He wanted someone who could cut costs

and also guide the company's foray into retail chains around the world.

One name stood out: Garriques, head of Motorola's (MOT) mobile devices

business. When he and Dell had met years earlier, Dell had been impressed

with how Garriques had guided development of the hit Razr phone. His broad

experience dealing with top executives at retailers and wireless carriers would

be invaluable as Dell tried to build a distribution network from scratch. Dellpicked up the phone to call Garriquesno headhunters got involvedand

quickly persuaded him to take the job. Dell's marching orders were simple:

Create a profitable consumer business with designs that rival Apple's or HP's.

Garriques took a step back before moving forward. He killed a line of less-than-

flashy consumer PCs Dell planned to introduce, called Mantra, and halted plans

to copy Apple by opening more than a dozen Dell-owned stores.

Then Garriques went hunting for a heavy-hitter to go up against Apple and HP.

In March 2007, he approached Ed Boyd, a 42-year-old designer at Nike (NKE).

Boyd had worked on sunglasses and running shoes but didn't have experience

in computers. Garriques told Boyd he would have the opportunity to make

design matter at Dell; Boyd jumped at the chance. The changes sent a clear

signal to Dell employees. The consumer business, long considered a

professional dead end, was going to be a priority. What's more, Boyd launched

experiments that showed it could be an exciting place to work. At one point,Boyd hatched a plan for customers to pay an extra $75 to get certain designs

on laptops, which so unsettled Dell's manufacturing team that they balked.

Boyd appealed directly to Dell, who green-lighted the move.

Later that year, Dell broke for good with its tradition of selling only direct to

customers. It announced plans to sell its machines at Wal-Mart (WMT), in what

the CEO called a "first step" in using retail stores to reach customers.


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Reorganizing Dell Inc.

The case examines the corporate restructuring program at Dell Inc. (Dell), theUS based leading technology company which develops, manufactures and sells

personal computers and other computer-related products. Founded in 1984, Dellwent on to become the largest seller of PCs and servers in the 1990s. However,with rising competition by early 2000s, Dell's market share started falling andits profitability was affected. To counter the competition and in an effort to

arrest the declining market share and profitability, Dell started a major corporaterestructuring program.

The restructuring program was implemented under the leadership of MichaelDell (Michael), the founder, Chief Executive Officer (CEO) and Chairman othe company.He initiated several changes including more focus on product design, sellingPCs through retail stores, acquiring software, storage and technology servicecompanies and implementing significant cost-cutting exercise. However, when

the restructuring efforts were still underway, the global financial crisis of 2008-09 affected Dell's financial performance adversely. In January 2009, Dell startedanother major reorganization program in which its global business wasrestructured around four customer groups Large Enterprise, Public Sector,SMB, and Consumer instead of the earlier geographical divisions. The companyalso initiated changes at the top management level. The case discusses therestructuring measures taken by Michael at Dell. It discusses the impact ofglobal financial crisis on Dell's businesses. The case ends with examining somestrategic measures taken by Dell to regain its market leadership position.

Issues: Understand the changing dynamics of the global PC industry. Examine the growth strategies of Dell over the years. Evaluate the efficacy of the measures adopted by Michael Dell to improve thefinancial performance of the company during his second term as the CEO ofDell.


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Dell's Multiple Restructurings Aid It in Tax Avoidance

David Cay Johnston received the Pulitzer Prize for his coverage of tax policy

while at The New York Times. He now teaches at Syracuse University College of

Law and is the author of three books about taxes --Free Lunch, Perfectly Legal,

and The Fine Print.

Johnston discusses a restructuring by Dell Inc. that would enable it and other

U.S. multinationals to avoid being taxed on their U.S. profits.

* * * * *

Six years ago, Dell Inc. announced a $12 billion restructuring with huge tax

consequences not just for Dell, but also for tax policy. If the deal works as

intended, American multinationals can copy it to escape the corporate income

tax on profits earned in the United States.

What Dell did was remake itself in a way that lets it escape taxes on profitsearned in the United States by running them through a Netherlands entity and

newly formed subsidiaries in Singapore and the Cayman Islands.

Dell later quietly dropped the Singapore and Cayman Islands entities in what

appears to be a pattern of remaking its corporate structure every few years.

This nuanced timing pattern may have great significance as a tool for tax

avoidance because IRS corporate audit practices were established on the

assumption that companies tend to have stable structures. The IRS rarely

audits newly formed entities.

You probably are unaware of this restructuring, even if you are a Dell

shareholder or a Wall Street analyst who follows the company. That's because

Dell mentioned it in just a single sentence in an SEC filing and, as best I can tell,

nowhere else.

Dell's restructuring is important because its founder plans to force out other

shareholders by selling the Texas computer maker to a private equity group for

a reported $15 billion, complicating open IRS audits.


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I would tell you what Dell thinks about these matters, except the company

declined to provide any information. Dell public relations executive Jess

Blackburn sent me a statement with a telling phrase:

Dell does not comment on details of its operations as you request. We do

understand our responsibility to pay taxes where we do business and we

operate in accordance with the letter and spirit of all laws and regulations.

Notice that phrase "where we do business."

The global reorganization I asked about was disclosed in January 2007 on a

Form 8-K, the official SEC form for announcing unexpected events. Dell said

that just before the end of 2006, it issued more than 475 million shares worth

$12 billion to invest in a subsidiary. Here is how Dell put it:

Dell has modified the corporate structure of certain of its subsidiaries to

achieve more integrated global operations and to provide various financial,

operational and tax efficiencies.

Dell is one of the biggest companies in the United States, but this item doesnot seem to have attracted any media attention. That is not surprising,

because the language conveys nothing -- unless you have gone through

hundreds of Dell filings, court papers, and other documents that convey how

significant the move was for shareholders and American taxpayers.

The documents suggest that Dell created companies with no apparent purpose

except to funnel profits into jurisdictions where they would be untaxed. In

some cases, subsidiary names existed for a day or so and then were changed to

the names of existing entities. The company shuffled its subsidiaries like a deckof cards -- a deck stacked against shareholders and the IRS.

Sometimes the deals used companies with identical addresses, suggesting

circular flows in which what would be taxable profits in the United States were

run through offshore entities with no discernible purpose except escaping tax.

These complex structures replaced an organization that used to be known for

its simplicity. Beneath Dell Inc., the parent firm, was a single subsidiary, Dell

International, into which everything else was tucked.


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I learned about the complex restructurings from Deene W. Lindsey, an

American economist educated at Princeton, who now lives in France. Lindsey

and his wife are part of a little-known business subculture composed of people

who ferret out evidence of money owed to the federal government in hopes of

getting paid under section 7623(b).

That section, enacted in 2006, lets individuals who draw the IRS's attention to

public documents indicating a tax deficiency get a reward of up to 10 percent

of the tax, penalties, and interest collected because of their work.

Lindsey had started looking into Dell's sales tax compliance when he and his

wife realized that some of the state filings and court papers they collected over

the Internet suggested a section 7623(b) award. At one point they laid out all

the paper they had collected to create a diagram for themselves of Dell'sactions. It took up the entire floor in one room of their home.

Before one restructuring, Dell Inc. sold products to domestic customers

through Dell Catalog Sales Corp., which shared the same address in Texas.

The couple distilled from annual corporate ownership and sales tax filings with

state governments, as well as stipulations in various civil lawsuits, that Dell

then replaced this simple organizational structure with a hierarchy of tax haven

holding companies.

In all, Dell inserted four new companies between the parent and operating

entities, which use the same Texas street address.

The result was that a Texas company reported to a Netherlands company that

reported to a Singapore company that reported to a Caymans company that

reported to what appears to be another Netherlands company that then

reported back to the Texas headquarters.

This makes business sense? I cannot fathom how -- except to escape taxes.

Keep that complex structure in mind when you hear all the complaints about

how government requires unnecessary paperwork from business. Filling out

paperwork can be very lucrative.

The concept of using Dutch, Cayman, and Singapore companies to siphon

money out of taxable jurisdictions and into ones with little or no tax is itself not

new.


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"The restructurings using subsidiaries in the Netherlands, the Caymans, and

Singapore appear to have as their only (or overwhelming) purpose to not pay

U.S. taxes," said professor Reuven S. Avi-Yonah of the University of Michigan

Law School, who reviewed some of the vast store of documents I examined.

"These structures make IRS auditing much more complex," Avi-Yonah said.

"Whether Dell owes more taxes is likely, but without a thorough audit there is

no way to know."

The documents Lindsey collected suggest that Dell engages in reorganizations

that allow it to define where it does business with less regard for substance

than for forms that enable it to source profits where they will not be taxed.

Figure 1


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Figure 2


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Dell CEO memo talks of a 'significant' boost to PCs and tablets in

restructuring

WhenMichael Dellsignaled intentions totake his company privatefor an

overhaul, there were questions as to just what he wanted to do if and when

shareholders weren'twatching his every move:was he going to shift attention

away from PCs toward the enterprise? There's no reason to worry, according

to a staff memo that his company has published through theSEC.Dell tells his

employees that the firm will "significantly increase investment" in PCs and

tablets after going private. While he's cryptic about what that means, he does

note that there would be a shift away from valuing gross margins -- in otherwords, the company may take a hit on profits to make its device sales sing.

Other strategies are more what you'd expect from any good business: more

research and development, a simpler experience and a stronger push into

developing markets like Brazil and China. We can't say we're completely

surprised when Microsoft made an investment in Dell's reorg precisely to

safeguard PCs, but it's good to know that Dell's interest in PCs still extends well

beyond the server room.
http://www.engadget.com/tag/MichaelDell/http://www.engadget.com/tag/MichaelDell/http://www.engadget.com/tag/MichaelDell/http://www.engadget.com/2013/02/05/dell-going-private-ms-loan/http://www.engadget.com/2013/02/05/dell-going-private-ms-loan/http://www.engadget.com/2013/02/05/dell-going-private-ms-loan/http://www.engadget.com/2013/03/23/potential-dell-bidding-war-afoot-as-blackstone-group-and-carl-ic/http://www.engadget.com/2013/03/23/potential-dell-bidding-war-afoot-as-blackstone-group-and-carl-ic/http://www.engadget.com/2013/03/23/potential-dell-bidding-war-afoot-as-blackstone-group-and-carl-ic/http://www.engadget.com/tag/SEC/http://www.engadget.com/tag/SEC/http://www.engadget.com/tag/SEC/http://www.engadget.com/tag/SEC/http://www.engadget.com/2013/03/23/potential-dell-bidding-war-afoot-as-blackstone-group-and-carl-ic/http://www.engadget.com/2013/02/05/dell-going-private-ms-loan/http://www.engadget.com/tag/MichaelDell/


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Conclusion

Managing complex business processes is one of the important management

challenges of this new century. Moreover, globalization and technological

advancement are driving changes in all sectors. In particular organisationalstructure and management style are playing an important role in today's

Information Technology Management.

Organisations vary in their ability to adapt to changes in the business

environment. In addition, organisational structure plays an important role to

adopt any changes. Often, similar activities and corporate resources are

grouped together in a hierarchical organisation structure. This structure

reflects the functionality of organisation in a top-down fashion and each of the

functionality is looked after by at least one specialized manager, often knownas line-manager for a particular function. It is also based on an effective span

of control or degree of specialization.

In this way, the groups are aggregated upwards in a hierarchical authority

structure. Organisational processes cross the boundaries of the groups and are

subject to interlocking procedures under the control of different managers.

This structure is inflexible as any process changes will require co-ordinated

change to procedures under the control of the different managers' whose

focus is often local rather than organisational. Response to changing

requirements can be slow as the decision making communication channels are

through this same authority structure.

Excellent communication is the key to supply chain efficiency. Through the

years retailers have tried many ways to achieve this and reduce overheads,

maximize sales and enhance supplier, and in turn, customer

relationships.Customer Relationship Management (CRM) has for a long time

been the industry buzzword. But retailers (e.g. Sainsbury) are increasingly

realising that to boost consumer satisfaction, drive sales, and manage

customer loyalty by having the right products available at the right time, they

need to enhance relationships with suppliers. This is know in the industry as

Supplier Relationship Management (SCM).


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