Michael Dell Chairman and CEO of Dell Inc. arrives at the launch event of Windows 8 operating system in New York, October 25, 2012.
Michael Dell wants to take his company private again

Michael Dell has orchestrated a $24.4bn leveraged buyout offer for the computer maker he founded nearly 30 years ago, joining forces with Microsoft and Silver Lake Partners in the largest take-private deal since the financial crisis.

If approved by shareholders, the investment group led by Mr Dell would pay $13.65 per share for all outstanding stock in Round Rock, Texas-based Dell, the world’s third-largest personal computer maker by shipments.

If successful, the deal will be among the largest LBO, and one of the most audacious bets that management and private equity can reverse the fortunes of a struggling technology company away from the scrutiny of public shareholders.

Silver Lake Partners will contribute cash to the deal, Microsoft will offer a $2bn loan and Mr Dell will roll over his 15.7 per cent stake in the company, worth $3.8bn. MSD Capital, which Mr Dell controls, will contribute additional cash.

To fund the rest of the deal, the group will receive debt financing coming from Barclays, Credit Suisse, Bank of America and Royal Bank of Canada.

The price per share represents a 25 per cent premium to the price before news of the Dell deal leaked earlier this month, but is well below the stock’s 52-week high of $18.36.

Dell shares were halted at the open of trading in New York but rose just under 1 per cent to $13.36 when trading began.

Hewlett-Packard, one of Dell‘s main competitors, issued a statement saying Dell “faces a tough road ahead”.

“The company faces an extended period of uncertainty and transition that will not be good for its customers,” HP said. “And with a significant debt load, Dell’s ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb.

“We believe Dell’s customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity.”

Though Dell will now entertain competing offers for the company during a 45-day period, no other private equity firms are expected to step forward, largely because, without Mr Dell’s stake, it would be hard for any group to raise the necessary funds for a buyout.

For Mr Dell, the deal represents one of the most ambitious gambits of his career. Though he has diversified his holdings into real estate, timber and debt and equity investments through MSD Capital, his stake in Dell represents nearly a quarter of his estimated $16bn fortune.

“This transaction will open an exciting new chapter for Dell, our customers and team members,” said Mr Dell. “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.”

Turning round the company will be no easy task for him. He has already spent $13bn on acquisitions since 2008 to focus more on higher-margin servers, software and services for the enterprise.

Analysts estimate about 70 per cent of the business is still dependent on PCs, where Dell has been losing market share amid a general decline for the industry in the face of an onslaught from smartphones and tablets.

“Dell has made solid progress executing this strategy over the past four years, but we recognise that it will still take more time, investment and patience and I believe our efforts will be better supported by partnering with Silver Lake in our shared vision,” Mr Dell said.

Silver Lake Partners, too, has much resting on this deal. The technology-focused private equity firm is riding a string of successes, including beating its fundraising target for its latest fund and profitably exiting its investment in Skype, which it sold to Microsoft. Yet the gamble on Dell represents perhaps its most ambitious single bet to date.

To flesh out the equity investment in Dell, Silver Lake has enlisted Microsoft, which helped create the PC industry with its Windows software. Microsoft’s involvement is as much a symbol of support for the flagging computer business as it is a bet on high returns, yet by backing one PC maker the company risks alienating other partners.

Mr Dell was only 19 years old when he founded his company in 1984 in his University of Texas dormitory room with $1,000. The company went public four years later, with a market capitalisation of $85m. During the 1990s, Mr Dell became the face of the US computer business, engineering his company to provide customised desktop and laptop computers to consumers and businesses through a direct-sales operation.

At the height of the dotcom boom, Dell was the largest computer systems provider in the world. By 2005, annual revenues surpassed $55bn.

In 2004, Mr Dell stepped down as chief executive but stayed on as chairman, ceding the operational role to Kevin Rollins. However, after three turbulent years when Dell’s share price nearly halved, Mr Dell returned as chief executive in 2007.

A special committee of Dell’s board was advised by JPMorgan and Evercore and received legal counsel from Debevoise & Plimpton. Dell was advised by Goldman Sachs and received legal counsel from Hogan Lovells. Mr Dell received legal counsel from Wachtell, Lipton, Rosen & Katz. Silver Lake was advised by the same four banks providing financing and received legal counsel from Simpson Thacher & Bartlett. Lazard advised Microsoft.

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