Thread: Dell to go private in landmark $24.4 BILLION deal

UPDATE 4-Dell to go private in landmark $24.4 billion deal

Tue Feb 5, 2013 11:40am EST

* Parties paying $13.65/share in cash
* Microsoft putting up $2 billion loan
* Dell shares rise 0.8 percent, still below offer price

By Poornima Gupta Feb 5

(Reuters) - Michael Dell will take Dell Inc private for $24.4 billion in the biggest leveraged buyout since the financial crisis, a deal that allows the billionaire chief executive officer to revive the fortunes of his computer company without Wall Street scrutiny.

The deal - announced on Tuesday and financed with cash and equity from Michael Dell, cash from private equity firm Silver Lake, and a $2 billion loan from Microsoft Corp - will end a rocky 24-year run on public markets for a company conceived in a college dorm room.

To many investors, Dell's decline in market share since its peak in the early 2000s symbolizes the rapidly dwindling prospects of the personal computer industry. The world's No. 3 PC maker, which Michael Dell began in 1984 as a computer-sales outfit while he was still a 19-year-old pre-med student at the University of Texas, is now going through a painful transition from a pure PCmaker to a one-stop provider of enterprise computing services. Sales of PCsstill make up the majority of its revenue. Analysts say the restructuring may entail job cuts and more costlyacquisitions, as the company arms itself to do battle with larger and moreestablished rivals like Hewlett-Packard Co and IBM Corp. "We recognize this process will take more time," Chief Financial OfficerBrian Gladden told Reuters. "We will have to make investments, and we will haveto be patient to implement the strategy. "And under a new private company structure, we will have time andflexibility to really pursue and realize the end-to-end solutions strategy." Gladden said the company's strategy would "generally remain the same" afterthe deal closed, but "we won't have the scrutiny and limitations associated withoperating as a public company." Michael Dell and private equity firm Silver Lake are paying $13.65 per sharein cash for the world's No. 3 computer maker. Michael Dell's MSD Capitalinvestment firm will also provide cash financing for the deal. Bank of AmericaMerrill Lynch, Barclays, Credit Suisse and RBC Capital Markets will offer debtfinancing. Shares of Dell were up 0.8 percent at $13.38 in morning trading. Dell, whose fairy-tale rise throughout the 1990s and the early part of thenext decade once made it a Wall Street darling, has ceded market share in recentyears to nimbler rivals such as Lenovo Group. That is in spite ofMichael Dell's efforts in the five years since he retook the helm of the companyfollowing a brief hiatus during which its fortunes waned. As of 2012's fourth quarter, Dell's share of the global PC market had slidto just above 10 percent from 12.5 percent a year earlier as its shipments dived20 percent - the fastest quarterly pace of decline in years, according toresearch house IDC. While analysts said Dell could be more nimble as a private company, it willstill have to deal with the same difficult market conditions. InternationalBusiness Machines Corp last decade underwent what is considered one of the mostsuccessful transformations of a hardware company, all while trading on publicmarkets. "This is an opportunity for Michael Dell to be a little more flexiblemanaging the company," said FBN Securities analyst Shebly Seyrafi. "That doesn'ttake away from the fact they will have challenges in the PC market like they didbefore."

RECORD BUYOUT The deal would be the biggest private equity-backed leverage buyout since Blackstone Group LP's takeout of the Hilton Hotels Group in July 2007 for morethan $20 billion, and is the 11th-largest on record.

The parties expect the transaction to close before the end of Dell's 2014second quarter, which ends in July. News of the buyout talks first emerged on Jan. 14, although they reportedlystarted in the latter part of 2012. Michael Dell had previously acknowledgedthinking about going private as far back as 2010. The $13.65-per-share price is a premium of about 24 percent to the average$11 price of Dell stock before news of the deal talks broke and is far below the$17.61 that the shares were trading for a year ago. "The key question here is will shareholders approve this deal, because there is practically no premium where the stock is trading," Sterne Agee analyst ShawWu said. J.P. Morgan and Evercore Partners were financial advisers,and Debevoise & Plimpton LLP was the legal adviser to the special committee ofDell's board. Goldman Sachs was financial adviser, and Hogan Lovells waslegal adviser to Dell. Wachtell, Lipton, Rosen & Katz was legal adviser to Michael Dell. BofAMerrill Lynch, Barclays, Credit Suisse and RBCCapital Markets were financial advisers to Silver Lake, and SimpsonThacher & Bartlett LLP was its legal adviser.

http://www.reuters.com/article/2013/02/05/dell-buyout-idUSL1N0B54PN20130205