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IDontUseTheForumSoWhyAmIForcedToMakeANickname
The only reason I see for the privatization is so that the core direction can be ...
DMcCunney
It looks like a good deal for the shareholders. The question is whether Dell ...
Dell going private in $24 billion deal
Dylan McGrath
2/5/2013 12:46 PM EST
SAN FRANCISCO--PC maker Dell Inc. will become a private company under a leveraged buyout deal worth about $24.4 billion, the company said Tuesday (Feb. 5).
Under the terms of the deal, Michael Dell, the company’s chairman and CEO, will acquire Dell in partnership with Silver Lake Partners, a leveraged buyout specialty firm focused on high-tech.
The deal includes an unspecified amount of cash and equity contributed by Michael Dell, cash funded by investment funds affiliated with Silver Lake, a cash investment from an investment firm owned by Michael Dell and a $2 billion loan from Microsoft. Terms of the deal also include rollover of existing debt and debt financing committed by several financial institutions. A breakout of how much Michael Dell and Silver Lake are each investing was not immediately available.
Michael Dell already owns roughly 14 percent of Dell’s common shares. He will continue to lead the company as chairman and CEO after the completion of the deal, Dell said.
Michael S. Dell
Dell stockholders will receive $13.65 in cash for each share of Dell common stock under the terms of the deal. According to Dell, the price represents a premium of 25 percent over Dell’s closing stock price on Jan. 11, the last trading day before rumors that the company would go private were first published. The price also represents a 37 percent premium over Dell’s average closing price during the 90 days prior to Jan. 11, Dell said.
Dell’s stock price closed at $13.27 Monday.
Dell, founded in the mid-1980s, has in recent years battled rival Hewlett-Packard Co. for leadership in global PC sales.But in the fourth quarter of 2012, Dell trailed both HP and China’s Lenovo Group Ltd. with a PC market share of about 10 percent, according to Gartner Inc. Both HP and deal are facing increased competition from the likes of Lenovo, Acer and other OEMs based in Asia.
Under the terms of the deal, Michael Dell, the company’s chairman and CEO, will acquire Dell in partnership with Silver Lake Partners, a leveraged buyout specialty firm focused on high-tech.
The deal includes an unspecified amount of cash and equity contributed by Michael Dell, cash funded by investment funds affiliated with Silver Lake, a cash investment from an investment firm owned by Michael Dell and a $2 billion loan from Microsoft. Terms of the deal also include rollover of existing debt and debt financing committed by several financial institutions. A breakout of how much Michael Dell and Silver Lake are each investing was not immediately available.
Michael Dell already owns roughly 14 percent of Dell’s common shares. He will continue to lead the company as chairman and CEO after the completion of the deal, Dell said.
Michael S. Dell
Dell stockholders will receive $13.65 in cash for each share of Dell common stock under the terms of the deal. According to Dell, the price represents a premium of 25 percent over Dell’s closing stock price on Jan. 11, the last trading day before rumors that the company would go private were first published. The price also represents a 37 percent premium over Dell’s average closing price during the 90 days prior to Jan. 11, Dell said.
Dell’s stock price closed at $13.27 Monday.
Dell, founded in the mid-1980s, has in recent years battled rival Hewlett-Packard Co. for leadership in global PC sales.But in the fourth quarter of 2012, Dell trailed both HP and China’s Lenovo Group Ltd. with a PC market share of about 10 percent, according to Gartner Inc. Both HP and deal are facing increased competition from the likes of Lenovo, Acer and other OEMs based in Asia.
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dylan.mcgrath
2/5/2013 4:08 PM EST
Does this deal make sense? Has the pendulum swung to where these kinds of buyouts are attractive once again? I think this is a good deal for Dell shareholders.
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yalanand
2/6/2013 6:17 AM EST
@dylan.mcgrat, I agree with you. Shareholders will benefit immensly from this but what about DELL ? How will this move help DELL ?
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rick.merritt
2/5/2013 8:59 PM EST
A similar move seemed to work for Seagate.
Despite Dell's acquisitions in networking, it seems it is still behind the curve in the post PC era. This move will give the once-retired Dell the breathing room to reshape his company into something that might survive the shifts.
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rick.merritt
2/5/2013 9:01 PM EST
PS: Nice of Microsoft to make a loan to facilitate the move given it helped suck profits out of the company and its cohorts for years.
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eewiz
2/5/2013 9:09 PM EST
what is advantage of going private? Is it that they dont have to please the wallstreet idiots every quarter and focus more on their products?
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Ogemaniac
2/5/2013 9:14 PM EST
Why go public? The very rich and the hedge funds control so much cash now, why bother with the rubes, and all the public and legal scrutiny it brings. The only reason anyone goes public any more is so that the insiders can cash out. By the time us schmucks can buy, the money has already been made.
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dylan.mcgrath
2/6/2013 12:24 AM EST
It's always seemed to me that there are so many advantages to being a private company. Fewer regulatory requirements and you don't need to make quarterly results your sole focus. You can think long term.
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yalanand
2/6/2013 6:23 AM EST
@dylan, what is the long term plan of DELL ? Does it want to completely move away from PC market to enterprise market ?
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daleste
2/5/2013 9:24 PM EST
It is interesting to watch these companies come and go. I'm not sure if Dell can ever get back to where they were. If I were Michael Dell, I don't think I would do that. But then, I guess that's why I'm not a billionaire.
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giriscitek
2/5/2013 10:41 PM EST
How does Dell find extra cash to keep up R&D efforts to satisfy market requirements to keep up its profits (savings for the future!) ?
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yjamal2k1
2/6/2013 4:55 AM EST
The deal looks very lucarative for PEs and Mr. Dell and other parties - given the company has net cash of $5bn (debt of $9bn & Cash of $14bn. So with total purchase price of $24bn, they need to contribute ~19bn or slightly more, in form of debt and equity, of $2bn will come from MSFT. Given the fact, Dell generated FCF of $12bn in last 3 yrs (2010-12). With the av. FCF run rate of $2.5bn a year. PEs can leave firm with 24% return (on EV/EBITDA of 3.0x)after five years with minimal debt.
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Frank Eory
2/6/2013 8:54 AM EST
The essential question will be how much of that ~19B will be debt and how much will be equity?
For the sake of Dell's future, I hope they don't get buried under a mountain of debt!
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AliciaS
2/6/2013 6:51 AM EST
The numbers are really huge. You know I guess I would also want to go private. In times of financial instability there is no need for anyone to know the amounts like that. I mean I am curious where do they get billions of dollars while some have to obtain payday loans ( http://paydayloansat.com/ ) in order to buy some food for their families? Hopefully the deal is going to make sense, because it would be sad if all of those millions-billions are going to be wasted. I do not really see how this deal is going to help Dell itself? I see all of the advantages for shareholders and this is it so far. Thanx for the updates
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rhelt201
2/6/2013 11:09 AM EST
Dell's computer is always more expensive than other brands. They offer big discount coupons - Lots of them listed at http://www.gogoshopper.com/Dell-com-Home-coupons.html . But even after the discount, their price is no cheap at all. Go figure at Costco or Sam's club: with a similar configuration, Dell is at least $100 more expensive than HP. Now they finally announced XPS 13 Ultrabook. But the price is again not acceptable.
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DMcCunney
2/7/2013 5:14 PM EST
It looks like a good deal for the shareholders. The question is whether Dell will *survive*.
The PC market is a commodity market with commodity pricing and paper thin margins. Given equivalent specs, it mostly doesn't *matter* whose name is on the box, and the purchase decision comes down to price, with lowest cost producer winning. Dell hasn't been the lowest cost producer, and it's not clear it *can* be.
The pressures that drove Dell to this are the same ones that saw IBM exit from the PC business they began, selling out to Lenovo, and had HP announcing an intent (later reversed) to get out of the PC business as well. You simply can't make money selling PCs.
Taking the company private relieves the pressure from the public markets, looking for revenue and profits Dell probably *can't* make. But it doesn't relieve the pressure period: the funds that put up the money to make these leveraged buyouts do so in expectations that the company can be turned around and made profitable, and that they can then sell their stake for more than they invested and make money on the difference.
I foresee interersting times for Dell as they try to turn around the business.
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IDontUseTheForumSoWhyAmIForcedToMakeANickname
2/14/2013 2:28 PM EST
The only reason I see for the privatization is so that the core direction can be changed. Stockholders demand returns on their investment and as DMcCunney says, the PC is a commodity market with razor thin margins. With the declining sales of PCs towards phablets, the margins eventually won't cover fixed costs.
By going private, previous dividends can be redirected to R&D so that Dell can reinvent itself. Or maybe even sell the PC division? Too early to speculate.
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