February 6, 2013 7:46 pm

Dividend hurdle almost derailed Dell deal

The biggest deal to take a company private since the global financial crisis was almost derailed by a debate over whether Dell would continue paying its quarterly dividend over the next few months, according to several people involved in the transaction.

A special committee had persuaded Silver Lake, the private equity firm, to raise its price from a low first offer of about $12 a share, proposed last year, to $13.60. Final negotiations began in the Manhattan offices of law firm Debevoise & Plimpton on Thursday.

Michael Dell, chairman and chief executive of the personal computer maker, had recused himself from all negotiations around price, letting Silver Lake managing partner Egon Durban do the heavy lifting.

On the other side of the table was Alex Mandl, a longtime Dell board member who was heading the special committee, along with advisers from JPMorgan and lawyers from Debevoise & Plimpton.

But there was a sticking point. Silver Lake wanted the company to stop paying a dividend at once, so the cash would stay on Dell’s balance sheet.

In June Dell had announced the first quarterly dividend in its history, and began paying shareholders $0.08 a share in October. This was a gesture of good faith to shareholders, who had watched the share price fall by half last year and Dell continue to miss analysts’ estimates.

The special committee insisted shareholders continue to receive their quarterly dividend, even during any take-private process, which will take several months. “That’s when things got western,” said one person involved in the negotiations.

The breakthrough came when Silver Lake agreed to the payout continuing, saying a price of $13.60 with a dividend was its “best and final offer”.

But the special committee pushed one last time, asking for a nickel more. Though incensed, Silver Lake had by this time come too far to walk away, and agreed to a final price of $13.65 a share, with dividends.

For Mr Dell, who is using shares that traded at $9 apiece just months ago in a deal that now values them at $13.65 a share, the price negotiations mattered less than for Silver Lake, which is contributing about $1bn in equity.

Besides the dividend, there was one final disruption to the deal – Sunday’s Super Bowl. The teams involved in the talks broke up to watch the game. To be with his family for the event, Mr Mandl drove 250 miles to his home on Chesapeake Bay in Maryland, then later drove back.

By Tuesday morning the deal was done.

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