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February 5, 2013 7:25 pm
Michael Dell’s proposed $24.4bn deal to take his company private marks an audacious bid to use his immense fortune to rescue the personal computer maker he founded three decades ago in his college dormitory room.
If approved by shareholders, the deal would be the largest buyout since the financial crisis, and the largest tech buyout ever. Yet even with Microsoft and Silver Lake Partners at his side, Mr Dell now faces the complicated task of trying to make Dell relevant again in the face of growing competition from mobile computing.
He said on Monday that going private would give the company the “time, investment and patience” needed to execute a turnround. However, no member of Mr Dell’s consortium offered details of the strategy, or specifics on how being private would benefit the company.
Given Mr Dell’s role in financing the transaction – he will provide roughly $4.5bn in shares and cash, according to people familiar with the deal – financial executives said they doubted the offer heralded another round of big buyouts. Competitors were also quick to pour cold water on the deal. “Dell has a very tough road ahead,” Hewlett-Packard said in an unusual statement issued shortly after the deal was announced. “The company faces an extended period of uncertainty and transition that will not be good for its customers.”
The price of $13.65 per share represented a 25 per cent premium to the stock’s share price before news of the deal leaked last month. But it is far below the 52-week high of $18.36, and more than 76 per cent off its all-time high.
Dell has a very tough road ahead. The company faces an extended period of uncertainty and transition that will not be good for its customers
Not all terms of the deal were made public on Tuesday, but the outlines of the capital structure had Mr Dell rolling over his 15.7 per cent stake in the company, worth $3.8bn. MSD Capital, Mr Dell’s investment firm, will contribute $700m in equity, according to people familiar with the situation. Silver Lake will add about $1bn in equity, these people said. Microsoft is offering $2bn in subordinated debt.
Some existing debt was being rolled over, and four banks were arranging another $15bn in new debt. Dell’s net cash pile on November 2 stood at $5.15bn.
Though there is a 45-day “go-shop” period for others to step forward, it is unlikely another bidder will emerge given Mr Dell’s critical role. Buyout activity has fallen off since the financial crisis, with the biggest constraint being the difficulty in raising equity.
Executives at other private equity firms said they believed the stock market was valuing Dell fairly. But they said the biggest challenge facing Silver Lake would be to find an “exit strategy” to profit from its investment.
“The only exit is the public markets,” said the head of capital markets at a rival to Silver Lake. “But even if you can get a $25bn enterprise value for Dell, it will take years to get out.”
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