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

Companies must negotiate changes to 'the standard terms for payment,' SEC filing states

May 6, 2013 06:30 AM ET

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

CEO and founder Michael Dell and private-equity firm Silver Lake Partners have proposed to buy Dell for $24.4 billion, a move they said would allow the then-private firm to accelerate its transformation from PC seller to a vendor pushing higher-margin software and services to enterprises.

But the $2 billion from the Redmond, Wash., developer apparently comes with some strings.

Prior to the buyout's conclusion, Microsoft and Dell must "negotiate in good faith and enter into, as soon as reasonably practical" one or more agreements "to modify, alter or amend ... the standard terms for payment under the existing commercial agreements between [Microsoft and Dell]," the securities purchase agreement filed March 29 with the U.S. Securities and Exchange Commission (SEC) stated.

The changes will include ones to the master OEM relationship agreements between the two firms, the document added.

A master OEM agreement is an umbrella agreement that spells out the software licensing terms between a developer and an OEM, reseller or customer. Those agreements typically include payment rates -- which may vary depending on the number of licenses purchased -- and may include minimum quantities that the OEM, reseller or customer commits to buy.

Details were not included in the filing with the SEC, and the securities purchase agreement gave no hint which party the payment changes would benefit: Microsoft, which has leverage from the $2 billion loan, or Dell, which could threaten to de-emphasize PCs and Windows unless it was given a break.

"Payment terms" usually refers to the time a buyer has to pay the seller, but those terms often include discounts for early payment or to prod the buyer in directions the seller desires.

If Dell is able to win most-favored status through the changes, analysts have said other OEMs, such as the world's top two, HP and Lenovo, may fear they're getting shortchanged, and rethink their plans for Windows.

Or the modifications could be wider-sweeping -- the mention of the master OEM agreement hints at such -- to formalize what one analyst said was a likely "gentlemen's agreement" between the companies.

In early February, when Dell announced the buyout plan, Patrick Moorhead, principal analyst with Moor Insights & Strategy, speculated that Microsoft's $2 billion contribution was contingent on Dell stepping up its use of Microsoft's products, or promising not to dabble in alternative operating systems, such as Google's Chrome OS.

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