A round up of some of the week’s most significant corporate events and news stories.
Corporate person in the news: Michael Dell
Michael Dell is an intensely personal man, which might explain why he is taking his computer company private after 25 years as a public corporation, write Chris Nuttall and Tim Bradshaw.
Mr Dell, 47, has always seemed uncomfortable in the spotlight and, if the leveraged buyout he proposed this week is successful, the man and the company he founded in 1984 can withdraw from the glare of scrutiny by investors and analysts.
“Michael Dell is a very cautious, closed dude in how he communicates with the world; in public, he is scripted, circumspect and exceedingly careful,” said an Austin, Texas-based industry observer, who did not wish to be named.
There was no news conference at Dell’s Round Rock, Texas headquarters and no interviews when all were eager to hear about the biggest take-private deal since the financial crisis.
In partnership with the Silver Lake private equity firm, he plans to buy out shareholders in a deal worth $24.4bn.
Rolling over his 16 per cent stake in the company, adding $500m from his personal fortune and taking on up to $16bn in debt means the billionaire – he is number 17 on Forbes US rich list with a net worth of $14.6bn – will have majority control of a private Dell.
In a memo to workers, the chief executive gave little away about his plans for the future, urging staff to “please stay focused on delivering results for our customers and our company”.
“He is basically an introverted, very private guy who, over time, has learned how to become a smoother public spokesman and salesman for the company. But he still likes to keep his cards very close to the vest,” said the observer.
The smart money is on him extending the company’s push into software, services and servers for business and moving away from the low-margin PC business that created the Dell brand and reputation but which is now suffering falling revenues and loss of market share.
“Wall Street has not been too kind to his efforts for the last three or four years,” said Patrick Moorhead, a former Compaq executive in Texas and now an industry analyst with Moor Insights & Strategy.
Dell shares are still a third lower than five years ago, even after a major boost from the buyout reports.
“Michael is one of the shrewdest business people that is out there. He can sense value and I think that him putting his company in the position to not exit the hardware business but diversify it with software and services is the only move he can make to add value to the company . . . I see this as not a last resort but a logical next step,” Mr Moorhead added.
Mr Dell has taken a step back from the limelight once before – handing over the chief executive role to Kevin Rollins in 2004 and becoming chairman, before returning to the helm in 2007 after the company’s fortunes nosedived.
He has made more than two dozen acquisitions since then in an attempt to reshape the company, but the buyout is his biggest move yet. “He is a deal maker and this is a really big deal,” said Mr Moorhead. “A lot of CEOs would love to thumb their noses at the public markets. I’m sure he is getting a kick out of this.”
Cheap credit speeds up talks over £10bn EE bid
The return of big-ticket deals fuelled by cheap credit was underlined this week when private equity groups intensified talks with banks over funding for a £10bn bid for Everything Everywhere, the UK’s largest mobile phone operator, writes Anne-Sylvaine Chassany.
The renewed interest in EE came in the same week that John Malone’s US media group Liberty Global made a $23bn offer for Virgin Media, the UK cable company. The deal, which was agreed by Virgin Media, will be partly financed by high-yielding junk bonds.
Apax and KKR are preparing a bid for EE, while Blackstone and CVC Capital Partners are working on a competing offer, people with knowledge of the talks said.
Such a deal would be the largest leveraged buyout since KKR bought UK pharmacy chain Alliance Boots for £12bn in 2007.
The potential bidders are exploring debt financing of up to £7bn to fund the acquisition of EE. They have circled the company since France Telecom and Deutsche Telekom announced plans to list the unit 18 months ago.
The private equity companies are accelerating efforts to bid for EE in the wake of buoyant credit markets in the US as they now think they can match the sellers’ asking price with a bigger debt package.
The private equity groups are working on plans that would see them contribute about £3bn in equity to the EE deal, which could result in Deutsche Telekom and France Telecom retaining a 15 to 20 per cent stake.
BP faces $34bn of spill claims from four US states
BP revealed this week that it is facing damages claims of more than $34bn from US states and local government over the 2010 Deepwater Horizon disaster, writes Guy Chazan.
The energy group said Alabama, Mississippi, Florida and Louisiana had all presented claims for alleged losses, including economic and property damage, as a result of the catastrophe.
BP said it considered the methods used to calculate the claims, which included punitive damages and other ratcheting factors, were “seriously flawed” and that the demands “substantially overstated”. The company said: “Should [they] proceed to trial, BP will defend vigorously against them.”
The claims are a fresh example of how BP continues to be overshadowed by the 2010 incident, caused when a well it was drilling in the Gulf of Mexico blew out, killing 11 men and triggering the worst oil spill in US history. A civil trial over the accident is due to start in New Orleans in less than three weeks’ time.
BP has paid roughly $32bn in cash on the spill, including clean-up costs and compensation. It also faces penalties under the US Clean Water Act, which could reach $21bn if it is found to have acted with gross negligence.
In a research note, Fitch Ratings said the additional $34bn of claims “provides another hurdle for BP to overcome on its path to recovery”. It said that, if they were realised, the cost of the spill could rise to as much as $92bn.
The news came as BP revealed fourth-quarter profits of $4bn.
Bonuses slashed as UBS shakes up pay scheme
The subject of banks’ pay policy returned to the spotlight this week when UBS cut its investment bankers’ bonuses by a third and drastically overhauled its overall pay scheme, writes Daniel Schäfer.
The Swiss bank is the first to give thousands of senior bankers bonuses in the form of bonds that can be wiped out if the lender fails to meet capital requirements.
The deal for 6,500 of UBS’s highest earners will make the bank the first to follow recommendations by an EU commission led by Finnish central banker Erkki Liikanen, in a move that analysts said would pave the way for others to follow.
It came as UBS reported a net loss of SFr1.89bn ($2.1bn) in the fourth quarter of 2012, mainly thanks to a large fine it paid for the manipulation of the Libor benchmark interest rate as well as restructuring costs for cutting back its investment bank.
In a move to appease investors and regulators, the lender made its investment bankers pay for a large bulk of the Libor fine. As a result, it reduced the bonus pool in the investment bank by a third to SFr1bn, people close to the situation said.
That compares with a cut of only 7 per cent to SFr2.5bn in the overall group as the bank’s management seeks to retain talent in its core wealth management business.
UBS’s new debt bonus will be written down to zero should the bank’s regulatory capital fall below 7 per cent or in the case of a “non-viability” loss.
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