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Dell unveils private equity buyout worth $24.4 bln


Feb 07, 2013 02:11:14 AM

Dell unveils private equity buyout worth $24.4 bln Dell unveiled plans to go private Tuesday in a $24.4 billion deal, giving founder Michael Dell a chance to reshape the former number one PC maker away from the spotlight of Wall Street.

"I believe this transaction will open an exciting new chapter for Dell, our customers and team members," Michael Dell said in unveiling the deal with equity investment firm Silver Lake, backed by a $2 billion loan from Microsoft.

The company said it had signed "a definitive" agreement to give shareholders $13.65 per share in cash -- a premium of 25 percent over Dell's closing share price on January 11, before reports of the deal circulated.

The move, which would delist the company from stock markets, could ease some pressure on Dell, which is cash-rich but has seen profits slump, as it tries to reduce dependence on the slumping market for personal computers.

The plan is subject to several conditions, including a vote of unaffiliated stockholders.

It calls for a "go shop" period to allow shareholders to seek a better offer.

The company founder said Dell has made progress in its turnaround strategy "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," he added.

Under terms of the deal, Michael Dell, who currently owns some 14 percent of Dell's common shares, would remain chairman and chief executive and boost his stake with "a substantial additional cash investment," a company statement said.

Additional cash for the deal will come from Silver Lake, a major tech investment group, and MSD Capital, a fund created to manage Michael Dell's investments.

The plan also calls for a $2 billion loan from Microsoft, rollover of existing debt, and financing committed by Bank of America-Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.

Credit ratings agency Standard & Poor's worried about Dell racking up debt in the transaction, warning it could cost the company its investment-grade credit rating.

S&P said it was putting Dell, which currently has an A- rating, on CreditWatch with negative implications. The ratings agency is thus weighing a downgrade of Dell's corporate credit.

And S&P rival Moody's lowered Dell's rating two notches, from A2 to Baa1.

"Moody's expects that conclusion of the review will likely result in a multi-notch rating downgrade of the long term rating to below investment grade given the proposed transaction's planned use of debt and Dell's continuing business challenges," it added.

Fitch ratings, meanwhile, downgraded Dell to BB+ from A, and placed it on Rating Watch Negative pending the buyout.

Analysts have said the deal may give the company a chance to regain some footing in a market in which smartphones and tablets are overtaking laptop and desktop computers.

"Michael has been trying to turn Dell into a supplier of enterprise solutions for a long time," said Roger Kay, analyst with Endpoint Technologies.

"He has pleaded with Wall Street to give him time."

Kay told AFP that going private would make a transition easier by avoiding the spotlight of "ugly results," which could come from scaling back the PC business.

Microsoft's participation in the deal suggests that Dell would remain in PCs and the Windows-based ecosystem, he added.

Deutsche Bank's Chris Whitmore said in a research note this week that Dell "would be free to execute his turnaround without the scrutiny of the public market" with "flexibility to do what he sees fit in order to drive long-term value."

Dell "could get more aggressive" in its enterprise software and cloud services, to make the company less dependent on PCs, the analyst said.

The Texas-based computer maker, which Dell started in his college dormitory room, once topped a market capitalization of $100 billion as the world's biggest PC producer.

Dell is now the number three global PC maker, behind Hewlett-Packard and Lenovo, according to the latest report from market tracker IDC, showing Dell's market share of 10.6 percent in the fourth quarter.

Rival HP said that Dell "has a very tough road ahead" with "an extended period of uncertainty and transition that will not be good for its customers."

HP "plans to take full advantage of that opportunity," it added.

Microsoft's participation further clouds the role of the Windows software maker, which has begun its own hardware efforts with the Surface tablet.

Microsoft said it was "committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future."


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