CEO and partners take Dell Inc. private

March 2013 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Michael Dell, the founder, chairman and chief executive of Dell Inc., has entered into a definitive merger agreement to reacquire his company for $24.4bn.

The acquisition will see the company taken private by Mr Dell, along with private equity firm and technology investors Silver Lake Partners – 25 years since it floated on the NASDAQ stock exchange. When Dell was first listed on the NASDAQ, its IPO raised $30m.

Under the terms of the agreement Dell shareholders will receive $13.65 in cash per share, representing a 25 percent premium over the company’s closing price of $10.88 on 11 January. The transaction is subject to the usual closing conditions and shareholder approval. Dell anticipates the deal will be completed before the end of the second quarter of Dell’s financial year 2014. Upon completion, the deal would represent the largest ever technology buyout, as well as the biggest leveraged buyout since the onset of the banking crisis in 2007.

According to a statement released by the company, Dell’s board of directors unanimously approved the deal based on the recommendation of a special committee of independent directors. Mr Dell excused himself from the discussions of the board, as well as the board’s vote on the transaction. The statement also notes that Mr Dell approached the company’s board with a buyout proposal in August 2012. The Dell board will now complete a 45 day ‘go-shop’ period, during which it will solicit better offers from other potentially interested parties. Alex Mandl, lead director of Dell’s board of directors noted that the go-shop “process provides a real opportunity to determine if there are alternatives superior to the present offer from Mr Dell and Silver Lake”.

Mr Dell, who owns a 14 percent share in Dell, hopes to revive the dwindling fortunes of the company, which has seen its PC manufacturing market share fall to third place behind HP and Lenovo. In 2012 Dell’s share of the PC market dropped 3.5 percent to 10.7 percent. Shares in the company also tumbled 31 percent in 2012 as pessimism surrounding the industry’s future continued.

All of the major players within the once dominant PC market have been heavily impacted in recent times. According to data released by technology research firm Gartner Inc, Q4 2012 saw a 5 percent drop in global PC shipments year on year. The rise of smart phones and tablet computers, and the increasing dominance of Apple, has blighted the PC landscape, eating away at sales as well as the Microsoft ecosystem.

Accordingly, Mr Dell and his partners intend to lead the company away from the PC market, shifting its focus toward business software and technology services. The decision to take the company private will aid the company’s transition and recovery as the new Dell will no longer be required to appease shareholders with strong quarterly results. “I believe this transaction will open an exciting new chapter for Dell, our customers and team members. We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise,” said Mr Dell.

Dell has spent in the region of $13bn since 2008 on servers and software focused acquisitions. Brian Gladden, Dell’s chief financial officer, told Reuters that “Under a new private company structure, we will have time and flexibility to really pursue and realise the end-to-end solutions strategy. We will be able to pursue organic and inorganic investment and we won’t have the scrutiny and limitations associated with operating as a public company.”

Along with Mr Dell’s MSD Capital and Silver Lake, Microsoft Corp will be providing a $2bn loan for the deal, which will also see Dell burdened with $15bn worth of new debt from financing provided by BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets. In a statement explaining the financing it provided, the software giant noted that “Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future”. The Microsoft loan suggests that Dell will not be abandoning the PC market altogether.

Richard Summerfield