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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 the corporation to 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 restructuring may 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 facilities owned 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 a leveraged buyout, a hostile takeover, or a merger of 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. Bankruptcy and 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 of a corporations debts. This may involve securing new loans at more favorable terms or negotiations with creditors. In some cases, a corporate bond issue 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 enter bankruptcy 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 reduce payroll, 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 and increase 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 a divestiture, 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 be undervaluing 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 boost shareholder value. A parent firm makes a subsidiary public through an initial 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 Stock A 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 are class 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 half or 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 often involved 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 a target company. In order to begin having influence in the direction of a business, investors must own a minimum stake in that company in equityshares based 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 identify corporations that do not appear to be delivering a stock's profit

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 that corporate 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 the merits in the world, but it needs shareholder support to become reality. If enough shareholders side with a corporate raider who 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.

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 changes will affect their job security. When the news gets out that the company is restructuring, some employees may begin looking for new employment. The stress of the restructuring sometimes takes away from the staff's focus on their actual work. Employees become even more worried if the company isn't forthcoming 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 that allows employees to have some idea of what's happening may put your employees at ease. Investor Reactions Depending on the size and funding of your company, investor reactions are sometimes negative to a restructuring situation. If your investors oppose the restructure or fear they'll lose money, you now have another issue to handle during the process. For companies that are publicly traded, a negative reaction to the restructure can result in dropping stock prices. Educating investors on the specifics of the restructuring plans and keeping them informed may help reduce their 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 employees who 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 American multinational computer technology company based in Round 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 the Fortune 500 list. In 2012 it was the third largest PC vendor in the world after HP andLenovo. Dell sells personal computers, servers, data storage devices, network switches, software, computer peripherals, HDTVs, cameras, printers, MP3 players and also electronics built by other manufacturers. The company is well known for its innovations in supply chain management and electronic 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 of Perot Systems Dell entered the 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 to Fortune magazine. It is the second largest non-oil company in Texas behind AT&T and the largest company in the Greater Austin area. On February 5, 2013, Dell announced that founder Michael Dell wanted to take the company private in a leveraged buyout, with financing from Silver Lake Partners and Microsoft. On September 12, 2013, the buyout was approved by a majority of the shareholders. Dell traces its origins to 1984, when Michael Dell created PC's Limited while a student of the University 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. The company grossed 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 22 initial public offering of 3.5 million shares at $8.50 a share. In 1992,Fortune magazine included Dell Computer Corporation in its list of the world's 500 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 at big-box retail outlets such as Wal-Mart, which would have brought in an additional $125 million in annual revenue. However, Bain consultant Kevin Rollins persuaded Michael Dell to pull out of these deals, believing they would be money losers in the long run.

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 XP was 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, and printers. Dell's firstacquisition occurred in 1999 with the purchase of ConvergeNet Technologies. Dell surpassed Compaq to become the largest PC manufacturer in 1999. In 2002, when Compaq merged with Hewlett 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 to Kevin Rollins who 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 acquired Alienware, which introduced several new items to Dell products, including AMD microprocessors. To prevent cross-market products, Dell continues to run Alienware as a separate entity, but still a wholly owned subsidiary.

Competition
Dell's major competitors include HewlettPackard (HP), Acer, Fujitsu, Toshiba, Gateway, Sony, Asus, Lenovo, IBM, MSI, Sa msung and Apple. Dell and its subsidiary, Alienware, compete in the enthusiast market against AVADirect, 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. Both Gartner and IDC 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 marketshare 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 competitors EMC and IBM.

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Dell partner program

In late 2007, Dell Inc. announced that it planned to expand its program to value-added resellers (VARs), giving it the official name of "Dell Partner Direct" and a new Website

Partnership with EMC

The Dell/EMC brand applies solely to products that result from Dell's partnership with EMC Corporation In some cases, Dell and EMC jointly design such products. Other cases involve EMC products that Dell supportsgenerally midrange storage systems, such as fibre channel and iSCSI storage 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 EMC Celerra NX4 storage system to the portfolio of Dell/EMC family of networked storage systems, as well as partnering on a new line of de-duplication products as part of its TierDisk family of data-storage devices. On October 17, 2011, Dell announced officially discontinued reselling all EMC storage 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 July 2005the 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 HewlettPackard and Acer made their PC manufacturing operations more efficient. Throughout the entire PC industry, declines in prices along with commensurate increases 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. CNET has 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 the next source of growth in the technology sector. Dell's low spending on R&D relative to its revenue (compared to IBM,Hewlett Packard, and Apple 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 technical support 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 able to 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 Silver Lake, 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 road ahead.

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 market value 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 think all 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 billion leveraged buyout deal, that would have delisted its shares from the NASDAQ and Hong Kong Stock Exchange and taken it private. Michael Dell and Silver 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 the 2007 financial crisis. It is also the largest technology buyout ever, surpassing the 2006 buyout of Freescale Semiconductor for $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 rival Lenovo reacted to the buyout, saying "the financial actions of some of our traditional competitors will not substantially change our outlook". 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 postdotcom era. Several major institutional shareholders have voiced opposition, including Southeastern Asset Management and Mason 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 own money 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 in breaking 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 the global 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 PC industry To discuss the strategy adopted by Dell to become the market leader in household PC segment To discuss how the companys market share was eroded and the company started to face the heat due to aggressive marketing strategy of its competitors To discuss the companys decision to enter into consumer electronics segment, strategy adopted by the company and apprehension among the analysts To discuss whether the companys decision to enter into the consumer electronics 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) - Michael Dell clinched shareholders' approval on Thursday for his $25 billion offer to buy and take Dell Inc private, 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 tablet markets, in expanding sales coverage, and in growing its distribution network, founder and Chief Executive Michael Dell said 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 third quarter. 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 the flexibility 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 quarterly earnings last 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, networking and software portfolios 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 Inc in recent years has become one of the more prominent victims of PC market erosion from mobile devices like Apple Inc's iPad. 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.

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Dell's Extreme Makeover

When a wave of mergers swept the tech industry in 2004, Michael S. Dell promised investors they wouldn't see his computer company anywhere near a negotiating table. "When was the last time you saw a successful acquisition or merger in the computer industry?" he asked at the time. Five years later, it's a different story. Round Rock (Tex.)-based Dell is weeks away from closing its largest acquisition ever, a $3.9 billion deal for tech-services provider Perot Systems (PER). The chief executive says more deals are likely, and this won't be the end of his changes in strategy. "Everything's on the table," he says. And with good reason. The company Michael Dell started in his college dorm and built into the preeminent personal computer maker has fallen on hard times. As the center of the tech industry has shifted from the PC to the Internet, Dell has struggled mightily to find its place. While Hewlett-Packard (HPQ), IBM (IBM), and other rivals transformed themselves in recent years by acquiring new companies and capabilities, Dell long stuck with its old playbook of cranking out PCs as efficiently as possible. It's hard to remember that in 2005 Dell was valued at $100 billion, or more than HP and Apple (AAPL) combined. Today, it's worth $30 billion, less than a third of its rivals' market values. While such signs of struggle are clear to the public, what isn't apparent is the steady overhaul Michael Dell has been working on since he returned to the chief executive role in 2007. The 44-year-old has been making sweeping changes in everything from personnel and partnerships to acquisitions and distribution. He hasn't talked publicly about his comeback strategy before. But in interviews with BusinessWeek, the CEO made it clear he is determined to change almost everything about the company he started 25 years ago. "There's been a pretty ginormous shift in our business over the last several years," says Dell, dressed in a black suit and tieless white shirt in the sprawling conference room next to his office. "We can do, and must do, more." He has installed an almost completely new management team to help with the
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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 directly to 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-out technology. 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) cofounder 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 Endpoint Technologies 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 was announced 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. Dell picked 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-thanflashy 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), the US based leading technology company which develops, manufactures and sells personal computers and other computer-related products. Founded in 1984, Dell went 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 and its profitability was affected. To counter the competition and in an effort to arrest the declining market share and profitability, Dell started a major corporate restructuring program. The restructuring program was implemented under the leadership of Michael Dell (Michael), the founder, Chief Executive Officer (CEO) and Chairman of the company. He initiated several changes including more focus on product design, selling PCs through retail stores, acquiring software, storage and technology service companies and implementing significant cost-cutting exercise. However, when the restructuring efforts were still underway, the global financial crisis of 200809 affected Dell's financial performance adversely. In January 2009, Dell started another major reorganization program in which its global business was restructured around four customer groups Large Enterprise, Public Sector, SMB, and Consumer instead of the earlier geographical divisions. The company also initiated changes at the top management level. The case discusses the restructuring measures taken by Michael at Dell. It discusses the impact of global financial crisis on Dell's businesses. The case ends with examining some strategic 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 the financial performance of the company during his second term as the CEO of Dell.

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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 profits earned 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 does not 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 deck of 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's actions. 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

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Dell CEO memo talks of a 'significant' boost to PCs and tablets in restructuring
When Michael Dell signaled intentions to take his company private for an overhaul, there were questions as to just what he wanted to do if and when shareholders weren't watching 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 the SEC. 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 other words, 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.

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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 organisational structure 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 known as 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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