Stumbling computer-maker Dell Inc will leap from the stock market and go private in a $24.4bn buyout.
Ever since Michael Dell founded the company in a dorm room at the University of Texas in 1984, the firm has enjoyed a fabulous ride. But it struggled this side of the year 2000 as the PC lost its lustre. The tech titan then went through a massive shift into the data centre to provide servers, storage, switching, services and – increasingly – software.
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Then about a month ago, rumours of Dell's desire to do a leveraged buyout started whirling around, and the cost to pull it off went up as Dell's share price rose on those rumours.
Today's deal is more or less what has been whispered in recent weeks: Dell, the man, is putting up his 14 per cent stake in the company (it was not 15.7 per cent as was widely reported) as well as some of his own capital plus equity from Silver Lake Partners, a loan from Microsoft, and repatriated Dell cash to offer Dell shareholders $13.65 per share.
That works out to $24.4bn in cash, and the question is whether or not shareholders will take the offer. This deal represents a 25 per cent premium over Dell Inc's closing price on 11 January, the Friday before the rumours hit that M. Dell wanted another run at taking his company private. And if you look at the 90-day average share price before 11 January, the $13.65 a share represents a 37 per cent premium.
This may be enough of a bump to make some Dell shareholders happy to head for the exits.
In a statement released before Wall Street opened for business today, it turns out that Dell, the man, approached the board of directors of his IT company in August to take the company private, and lead director Alex Mandl hired legal advisors JPMorgan Chase and white-shoe law firm Debevoise & Plimpton to advise a special committee to consider the deal as well as its other strategic alternatives.
The board then engaged an unnamed management consulting firm to do an independent analysis of its "strategic alternatives", but probably did not consider the advice Dell, the man, gave to Apple a decade ago that perhaps it should just give all the money back to the shareholders and shut it down.
Get your skates on now if you fancy buying Dell (the company)
As the talks progressed, the Dell board retained Evercore Partners, which will manage a "go shop" period of 45 days to see if they can come up with a better offer. There is a $180m termination fee for breaking up the Dell-Silver Lake leveraged-buyout offer, which any other bidder will have to pay.
If another buyer comes in after the 45-day go shop period, the termination fee is $450m. So if you want to buy Dell, you had better act fast.
The deal is complex, and it doesn't look like Microsoft has gotten its hooks as deeply into Dell as it otherwise might have. Dell is putting in his 14 per cent stake in common shares and will remain as chairman and CEO of the company, which will also stay headquartered in Round Rock, Texas.
Dell is making a "substantial additional cash investment" to do the deal, to prove he has skin in the game, and Silver Lake and MSD Capital, his own equity investment firm, and Dell, the company, are also putting in cash. Dell is rolling over existing debt, getting a $2bn loan from Microsoft, and obtaining debt financing to buy back shares from Bank of America Merrill Lynch, Barclays, Credit Suisse and Royal Bank of Canada Capital Markets.
The exact amounts of money from each will be presumably detailed in Dell's 8K filing with the US Securities and Exchange Commission (SEC), but that filing has not been done yet as El Reg hits the publish button.
"I believe this transaction will open an exciting new chapter for Dell, our customers, and team members," Dell, the man, said in the statement announcing the deal. The big man added:
We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise. 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.
I am committed to this journey and I have put a substantial amount of my own capital at risk together with Silver Lake, a world-class investor with an outstanding reputation. We are committed to delivering an unmatched customer experience and excited to pursue the path ahead.
What path that may be, and how it is different from the one Dell was pursuing as a public company for the past three years, remains to be seen. Dell, the company, did not host a conference call with Wall Street to talk about that. And that is one of the main benefits of going private. ®