Dell Seeks $24.4B Buyback To Go Private
February 5, 2013

Dell Decides To Go Private With Risky $24.4B Buyback

Enid Burns for — Your Universe Online

Recovery comes at a price, and for Dell Inc. that price is $24.4 billion to finance a buyback and take the company private. The struggling computer manufacturer believes it can make a recovery but thinks in order to do so its operations and business decisions need to be free of the scrutiny of shareholders. With help from equity firm Silver Lake Partners, company founder and CEO Michael Dell will finance the $24.4 billion buyout to take the company private.

Shareholders will get a per-share price of $13.65, which includes a 25 percent premium over last month's average trading price, the Wall Street Journal reports.

The deal "immediately delivers value to shareholders," Brian Gladden, CFO of Dell, told the Journal. The paper reports Gladden says Dell has made progress in its efforts to turn itself around but that it recognizes it needs “more time." And according to Gladden, the computer maker can more easily make the tough but necessary changes they need without the limitations of being a public company.

Michael Dell owns about 14 percent of Dell shares prior to the buyout. Dell and Silver Lake Partners will fund the purchase of the remaining shares to take the company private. The buyback is a bid toward bringing the computer manufacturer back from several years of shrinking revenue.

"This is an opportunity for Michael Dell to be a little more flexible managing the company," FBN Securities analyst Shelby Seyrafi told Reuters. "That doesn't take away from the fact that they will have challenges in the PC market like they did before."

Even in its struggles, Dell remains listed as the number 3 computer maker worldwide, according to Reuters. However, the company's market share has given way to Lenovo and other rivals in recent years.

"They obviously see the writing on the wall," Daniel Morgan, senior portfolio manager with Synovus Trust Co. in Atlanta, said in an article in Bloomberg Businessweek.

The buyback will be financed through a combination of cash and equity. In addition to the financing fronted by Michael Dell, the cash will come from investment funds affiliated with Silver Lake, cash invested by MSD Capital, a $2 billion loan from Microsoft, a rollover of existing debt, and debt-financing commitments from Bank of America Merrill Lynch, Barclays, Credit Suisse and RBC Capital.

The transaction is expected to close before the end of the second quarter of Dell's 2014 fiscal year. First, the company will observe an initial "go-shop" period, which will span 45 days. During this period Dell can actively solicit alternative proposals.

"I think the key question here is will shareholders approve this deal, because there is practically no premium where the stock is trading," Stern Agee analyst Shaw Wu told Reuters.

While the road to recovery will involve changes in operations, Dell Inc. is not expected to undergo a major structural change. The company will continue to be based in Round Rock, Texas. Michael Dell will remain chairman and chief executive. His stake in the company, however, seems sure to increase above his previous 14 percent.