Dell Going Private In $24 Billion Deal
Today it was announced that Dell has agreed to go private in a $24.4 billion dollar deal lead by the company’s founder and the private equity firm Silver Lake, in the biggest leveraged buyout since the financial crisis.
At about 25 percent above where Dell’s stock traded prior to any word of negotiations on its sale, the buyers’ consortium has agreed to pay $13.65 per share in cash.
The deal is projected to be completed by the end of the second quarter, and the company’s stock will be delisted from the exchange.
All outstanding shares not held by key members of management will be acquired by the investor group.
A combination of investment funds tied to Silver Lake, a $2 billion loan from Microsoft, and cash and equity contributed by Michael Dell will be used to finance the transaction. Additional funding sources comprise cash invested by MSD Capital, debt financing by BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.
I believe this transaction will open an exciting new chapter for Dell, our customers and team members… Dell has made solid progress executing this strategy over the past four years, but we recognize 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,” Michael Dell said.
With an ever increasing market shift toward mobile computing and Dell’s lack of diversity outside of custom PCs, Dell’s revenue in its primary business has been shrinking. Research firm IDC reported that Dell’s global market share fell from 12.2 percent to 11 percent last year.
The company has been developing a new business line that could bring healthier profit margins. Dell is considering a transformation in to an enterprise software and services company. In July, Dell paid $2.4 billion for Quest Software, a corporate security and work computer “virtualization” software developer. Perot Systems, an IT service provider for large enterprise customers, was also purchased by the company in 2009 for $3.9 billion.
Regardless, this transaction represents a huge moment for the private equity industry. This is the largest leveraged buyout since Blackstone Group’s $26 billion takeover of the Hilton Hotels in 2007.
Egon Durban, a managing partner at Silver Lake, said, “Michael Dell is a true visionary and one of the pre-eminent leaders of the global technology industry… Silver Lake is looking forward to partnering with him, the talented management team at Dell and the investor group to innovate, invest in long-term growth initiatives and accelerate the company’s transformation strategy to become an integrated and diversified global I.T. solutions provider.”
In an attempt to avert any accusations of self-dealing, an independent investment bank, Evercore Partners, has been hired by the special committee to oversee a 45 day “go-shop” period in which other potential buyers will be solicited by the company.
Alex J. Mandl, the head of the Dell independent committee, said in a statement, “The special committee and its advisers conducted a disciplined and independent process intended to ensure the best outcome for shareholders… Importantly, the go-shop process provides a real opportunity to determine if there are alternatives superior to the present offer from Mr. Dell and Silver Lake.”
A memo was sent out by Michael Dell today informing company employees about the deal. Here’s a copy of that memo:
Today, we announced a definitive agreement for me and global technology investment firm Silver Lake to acquire Dell and take it private.
This transaction is an exciting new chapter for Dell, our team and our customers. We can immediately deliver value to stockholders, while continuing to execute our long-term growth strategy and focus on helping customers achieve their goals.
Together, we have built an incredible business that generates nearly $60 billion in annual revenue. We deliver enormous customer value through end-to-end solutions that are scalable, secure and easy to manage, and Enterprise Solutions and Services now account for 50 percent of our gross margins.
Dell’s transformation is well underway, but we recognize it will still take more time, investment and patience. I believe that we are better served with partners who will provide long-term support to help Dell innovate and accelerate the company’s transformation strategy. We’ll have the flexibility to continue organic and inorganic investment, and grow our business for the long term.
I am particularly pleased to be in partnership with Silver Lake, a world-class investment firm with an outstanding reputation and significant experience in the technology sector. They know all the technology business models, understand the value chain and have an extremely strong global network of contacts. I am also glad that Microsoft is part of the transaction, further building on a nearly 30-year relationship.
I am honored to continue serving as chairman and CEO, and I look forward to working with all of you, including our current senior leadership team, to accelerate our efforts. There is much more we can accomplish together. I am committed to this journey and I am grateful for your dedication and support. Please, stay focused on delivering results for our customers and our company.
There is still considerable work to be done, and undoubtedly both challenges and triumphs lie ahead, but as always, we are making the right decisions to position Dell, our team and our customers for long-term success.
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