Dell buyout deal moves closer
Posted on 16 Jan 2013 at 09:24
Dell is in advanced talks with at least four major banks lined up to provide financing for a deal that would see the company go private.
Buyout firm Silver Lake Partners, which is leading the deal, tapped Credit Suisse, Bank of America Merrill Lynch, Barclays and RBC late last year to finance a potential deal, sources told Reuters on condition of anonymity, because details have not been made public.
JPMorgan is advising Dell on a potential buyout of the $19 billion company, which would be one of the largest deals since the global recession.
It will also allow Dell, which has been trying to become a one-stop shop for corporate technology needs as the PC market shrinks, to conduct that difficult makeover away from public scrutiny.
The sources cautioned that a deal could come soon but that the situation was still fluid.
Silver Lake Partners was in discussions with Dell for a buyout at around $13.50 to $14 a share, with an equity investment from Silver Lake and other potential investors of roughly $2 billion, CNBC reported.
Dell, Bank of America, RBC, Barclays and Credit Suisse declined to comment. JP Morgan and Silver Lake did not immediately return calls seeking comment.
Dell, which has been in talks with private equity firms on a potential buyout, has had on and off discussions with the firms but talks heated up late last year, they said.
A deal involves equity investment from billionaire CEO Michael Dell, who owns 14% of the world's third largest PC maker. Michael Dell now owns 244 million shares in the company, according to Thomson Reuters data, and last year was ranked the 22nd richest American with a fortune of $14.6 billion.
Why go private?
News of a potential deal caught many industry participants by surprise, many of whom find it difficult to understand the rationale of the private equity investors behind such a move.
Dell has lost 40% of its value since last year's peak. It has embarked on an aggressive investment strategy to diversify away from its core PC business.
It may be easier to pull off acquisitions as a private company and away from Wall Street scrutiny, said one private equity executive with experience in buyouts but not involved in the Dell deal.
Having a private equity investor could also facilitate access to debt markets, with Dell also benefiting from all the contacts a major private equity outfit could bring to the table, the person said.
Beyond that, many analysts and executives said that the potential deal is mainly one based on Dell's low valuation.
Sanford Bernstein analyst Toni Sacconaghi had speculated that Dell was worth $12 a share on a sum-of-parts basis, of which the PC business was worth about $4.70. Still, any deal is challenging mostly because of its sheer size and lacklustre prospects for a PC market that's dwindling with the advent of tablets such as Apple's iPad, according to analysts.
The odds of a buyout "are probably low, given its size and our expectation that it may require about $4 billion in equity," Sacconaghi said.
"We see the rationale for a Dell (leveraged buyout) as being largely opportunistic given low valuation and interest rates, as we don't see any obvious restructuring opportunities or unique exit strategy," he said.
Barclays analyst Ben Reitzes said going private would also mean Dell would increase its already large debt load, which currently stands at approximately $9 billion, making it tougher to acquire smaller companies. Such a move made sense only "if Dell's earnings power was stable - and backed by real recurring revenues."
"Obviously, with Michael Dell's ownership of $3 billion and net worth of about $14.6 billion the possibility of a go-private transaction cannot be ruled out," he said.
That's the whole point of Private Equity....
The fact that few "saw this coming" and the current "low" valuation pretty much encapsulates the Private Equity Investor modus operandi. Of course there's no "obvious restructuring opportunities or unique exit strategy". If it was easy, everyone would be doing it....
It would be a bit of a gamble, but if Michael Dell & partners can pull it off, then big profits might well ensue.
By wittgenfrog on 16 Jan 2013
live in hope
After Michael left Dell the CFO / Accountancy based approach pretty much destroyed Dell by forcing a downward spiral of price war, mainly on laptops.
Since his return the product quality has risen sharply and they are making good product once more.
There are others suffering directly as a result of that downward pressure. HP, Toshiba and others all started turning out rubbish quality marginless product too, destroying their own reputations in the consumer field.
At no time should any company allow the CFO and Accountancy to direct a business. It will always end in mediocrity and failure.
If you make something cheaper and cheaper, it ends up being crap.
By Gindylow on 18 Jan 2013
- Flickr redesign: is it enough to tempt photographers back?
- Hands on with the new Google Maps
- Nokia Lumia 925 review: first look
- Why I won't subscribe to Creative Cloud
- GoPro camera strapped to a remote-control helicopter: the ultimate boy's toy
- Acer Iconia A1 review: first look
- Acer Aspire P3 review: first look
- Acer Aspire R7 review: first look
- How we produce the PC Pro podcast
- Google Now draining iPhone battery
- Start8 and ModernMix: making Windows 8 work on a desktop
- How to boost your mobile reception
- How to fix Facebook: Social Fixer
- Taking the stress out of WordPress updates
- Where to download free web fonts
- Turn your tablet into a Sky+ remote control
- How to measure the success of a new IT system
- Three years on: the state of the tablet market
- Windows 8: what works and what doesn't
- Yes, I write down my passwords