Dell’s goodwill between brothers…

June 4, 2008

In February, when Dell (DELL) announced that it was buying MessageOne for $155 million in cash, questions were raised because one of the company’s co-founders is Adam Dell, who happens to be the brother of Dell Chairman and CEO Michael Dell. In the release announcing the deal, the company noted that it took “additional steps as part of the acquisition process because the transaction involves related parties” and that Michael Dell was not involved in the negotiation.

Fair enough. But in the 10Q that Dell filed yesterday, there were some interesting new disclosures about the deal: Dell will spend another $10 million on “management retention” and a very sizable chunk of the purchase price was recorded as goodwill, meaning that the value of MessageOne’s hard assets was relatively meager. Of course, given the way the footnote is worded, it’s hard to get an exact handle on the goodwill, since the MessageOne deal is lumped in with another, smaller purchase of a company called The Networked Storage Company. When Dell announced that deal, the price was not disclosed.

So that leads to some back of the envelope math: the two deals cost Dell $186 million with $133 million allocated to goodwill. Since we know that MessageOne cost $155 million, we can assume that the other company went for around $31 million. Getting to the goodwill breakdown is much harder.

Why care about goodwill at all? Because as we’ve seen in lots of other deals, goodwill is often synonymous with the froth — the amount a company overpays to buy a particular group of assets or company and there’s plenty of froth floating around right now. Granted, these are small numbers given Dell’s size, but the family connection makes it a lot more interesting than just a typical deal.

On a totally separate note, later this afternoon, a group of former SEC Commissioners will gather at the SEC’s headquarters in Washington to discuss life and other stuff. Hopefully this will be more exciting than last year’s meeting, where we learned that former Chairman Arthur Levitt is a fan of Ebay (EBAY).

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