Dell’s Go-Private Case Emerged as Business Eroded
Michael Dell negotiated for the better part of five months, in a tortured, tedious process with the board of directors of Dell Inc., the troubled computing company that bears his name, over the details of a proposed $24.4 billion buyout plan, a new proxy filing released today shows.
Dell and his partner in the deal, the private equity firm Silver Lake Partners, first offered $11.22 a share for the company, and during the course of a lengthy negotiation process that included 25 separate meetings, raised its offer price six times, adding $4 billion to to the pot. The parties finally settled on $13.65 in an offer announced last month.
The filing also shows that CEO Michael Dell met with representatives of private equity firms Blackstone Group and Francisco Partners, which have teamed up to make a competing offer for the company. The meetings occurred on March 7 and 8, during a 45-day go-shop period, when a special committee of Dell’s board overseeing the process sought superior offers.
Blackstone, as well as the activist investor Carl Icahn, last week uncorked offers they argue are better than than the Dell-Silver Lake bid.
The new disclosures are contained in a massive 274-page proxy filing with the U.S. Securities and Exchange Commission that was made public only minutes ago.
Among the other new disclosures made in the filing, which you can read below:
- The process of going private began in earnest on June 15, 2012, when Dell’s largest shareholder, Southeastern Asset Management, which owns about 7 percent of Dell’s shares, contacted Michael Dell about the possibility. Dell said he’d think about the idea.
- The special committee was motivated to embrace the go-private option in part by the rapid slowdown in Dell’s various lines of business; they were not satisfied that the turnaround plan put in place by CEO Michael Dell to push the company away from personal computers and toward enterprise hardware and services was having the desired effect.
- As of the end of Dell’s third fiscal quarter in 2013, its revenue for each of its prior seven quarters had fallen below internal forecasts. Dell had missed numerous quarters and, except in one case, the expectations of analysts. The company brought in BCG to revise those forecasts. BCG’s forecasts showed Dell’s revenue declining from $62 billion in the fiscal year ended January 2012 to $54.3 billion through the fiscal year ended February 2017.
- Michael Dell held his first conversations with Silver Lake on July 17, 2012, the same day he participated in this interview with AllThingsD. They agreed to meet more formally the following month. He also approached another private equity firm named only as “Sponsor A” which is said by people familiar with the matter to be KKR, in meetings held on Aug. 11 and 13.
- Another key date was Dec. 6. On that day, during a meeting of Dell’s board, Michael Dell made the case that the only way out of the company’s weakening state was to carry out a dramatic remaking. The strategy he would carry out would require significant investments in research and development and acquisitions, hiring a large number of sales people, expanding business in emerging markets and investing in the development of new products. All of those, carried out at once, would be expensive undertakings that would hurt the company’s share price. “Mr. Dell stated his belief that such initiatives, if undertaken as a public company, would be poorly received by the stock market because they would reduce near-term profitability, raise operating expenses and capital expenditures, and involve significant risk,” the filing reads.
- Dell argued in this presentation that going private is the best option for shareholders because they’d receive some compensation in the form of a premium for their shares without having to bear any of the risk should the strategy not work out.
- At least one other private equity firm was approached about partnering with Dell on a buyout. A company described in the filing only as “Sponsor B” is thought by sources close to the process to be TPG. The identity of another company mentioned in the filling, described only as “Sponsor C,” is not yet clear.
Here’s the filing. I’ll have more as I go through it.