Dell to go private in landmark $24.4 billion deal

Tue Feb 5, 2013 6:47pm EST
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By Poornima Gupta and Nadia Damouni

SAN FRANCISCO/NEW YORK (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 to attempt a revival of his struggling computer company without Wall Street scrutiny.

The deal, which requires shareholder approval, would end a 24-year run on public markets for a company that was conceived in a college dorm room and quickly rose to the top of the global personal computer business - only to be rendered an also-ran over the past decade as PC prices crumbled and customers moved to tablets and smartphones.

Dell executives said on Tuesday that the company will stick to a strategy of expanding its software and services offerings for large companies, with the goal of becoming a full-service provider of corporate computing services in the mold of the highly profitable IBM. They downplayed speculation that Dell might spin off the low-margin PC business on which it made its name.

Dell did not give specifics on what it would do differently as a private entity to convince skeptics who say it missed the big industry shift to tablet computers, smartphones and high-powered consumer electronic devices such as music players and gaming consoles. Sources with knowledge of the matter said Dell's board had considered everything from a recapitalization to a breakup of the company before going the leveraged buyout route, but did not elaborate.

"A private Dell is likely to more aggressively cut costs, in our view. But we think merely restructuring only postpones the inevitable, creating a value trap," said Discern Inc analyst Cindy Shaw. "Dell needs to do more than reduce its cost structure. It needs to innovate."

The deal will be financed with cash and equity from Michael Dell, cash from private equity firm Silver Lake, a $2 billion loan from Microsoft Corp, and debt financing from a consortium of banks. The price of $13.65 per share represents a 25 percent premium over Dell's stock price before news of a pending deal leaked in January.

The company will now conduct a 45-day "go-shop" process in which others might make higher offers.

"Though we were hoping for a higher price, we trust that the Dell board has properly done its job by conducting a process open to any third party offers and reviewing all strategic options," said Bill Nygren, who manages the $7.3 billion Oakmark Fund and $3.2 billion Oakmark Select Fund, which have a $250 million position in Dell. "Should we hear evidence to the contrary, we'll raise a ruckus."   Continued...

Dell founder and CEO Michael Dell displays a Dell tablet computer during his keynote address at Oracle Open World in San Francisco, California in this September 22, 2010 file photograph. REUTERS/Robert Galbraith/Files