Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Dell Confirms Plan to Go Private in $24.4 Billion Buyout Deal

Michael Dell, the founder of the computing and technology company that bears his name, confirmed today that he intended to buy it back from shareholders. In a deal announced this morning, Dell and Silver Lake Partners will buy out the company’s existing shareholders in a transaction worth $24.4 billion.

The deal values Dell at $13.65 a share, amounting to a 25.5 percent premium over the closing price of $10.88, where Dell was trading on Jan. 11 before the first reports of renewed interest in a buyout transaction emerged.

The deal also brings together private equity fund Silver Lake with software giant Microsoft, and represents the latest step in a relationship that began when Microsoft bought out Skype for $8.5 billion in 2011.

The deal includes a $2 billion loan from Microsoft.

Microsoft confirmed its participation in the deal in a statement:

Microsoft has provided a $2 billion loan to the group that has proposed to take Dell private. Microsoft is 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.

“We’re in an industry that is constantly evolving. As always, we will continue to look for opportunities to support partners who are committed to innovating and driving business for their devices and services built on the Microsoft platform.”

Other financing is coming from Silver Lake; Michael Dell’s personal investment company, MSD Capital; the rollover of existing debt; and financing contributed by Bank of America/ Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets, plus Dell’s cash on hand, which stood at about $11.3 billion as of Nov. 1.

Michael Dell will remain as chairman and CEO.

The deal provides for a 45-day go-shop period, during which the company will seek to find a superior offer, but given the size of the deal, don’t expect there to be any takers. Investment bank Evercore Partners will run the go-shop process, and had advised the special committee of Dell’s board of directors that has been exploring options for the company.

Dell shares were halted as the markets opened for trading in New York this morning.

Dell has been trying to transform itself from what was once the world’s foremost PC maker into a company known more for a diverse portfolio of enterprise IT hardware, software and services. It has sought to do this mostly by way of acquisitions, about $13 billion worth since 2008.

A recent example is last year’s $2.4 billion deal for Quest Software, which it won after a complex on-again off-again bidding war with private equity fund Insight Venture Partners.

In addition to acquisitions, Dell has been beefing up its executive ranks on the enterprise side of the business. Last year, Dell hired Marius Haas, the former head of networking at Hewlett-Packard, to run its enterprise division, and John Swainson, the former CEO of IT services company CA, to run its software unit.

And while the enterprise side of the business has been growing, it hasn’t been doing so fast enough to make up for the ongoing decline in PC sales that has ravaged that industry.

Indeed, despite Dell’s best efforts to move away from PCs, the percentage of its revenue that is either derived directly from sales of PCs to consumers and corporations, and of sales of PC-related peripherals like monitors, still amounts to 70 percent.

Here’s the original announcement that just crossed the wires:

Dell Enters into Agreement to Be Acquired by Michael Dell and Silver Lake
Dell stockholders to receive $13.65 per share in cash
Transaction valued at approximately $24.4 billion
Transaction implies a 37 percent premium over the average closing share price during the previous 90 calendar days ending Jan. 11, 2013


Dell Enters into Agreement to Be Acquired by Michael Dell and Silver Lake
Dell stockholders to receive $13.65 per share in cash
Transaction valued at approximately $24.4 billion
Transaction implies a 37 percent premium over the average closing share price during the previous 90 calendar days ending Jan. 11, 2013

Dell Inc. today announced it has signed a definitive merger agreement under which Michael Dell, Dell’s Founder, Chairman and Chief Executive Officer, in partnership with global technology investment firm Silver Lake, will acquire Dell.

Under the terms of the agreement, Dell stockholders will receive $13.65 in cash for each share of Dell common stock they hold, in a transaction valued at approximately $24.4 billion. The price represents a premium of 25 percent over Dell’s closing share price of $10.88 on Jan. 11, 2013, the last trading day before rumors of a possible going-private transaction were first published; a premium of approximately 35 percent over Dell’s enterprise value as of Jan. 11, 2013; and a premium of approximately 37 percent over the average closing share price during the previous 90 calendar days ending Jan. 11, 2013. The buyers will acquire for cash all of the outstanding shares of Dell not held by Mr. Dell and certain other members of management.

The Dell Board of Directors acting on the recommendation of a special committee of independent directors unanimously approved a merger agreement under which Michael Dell and Silver Lake Partners will acquire Dell and take the company private subject to a number of conditions, including a vote of the unaffiliated stockholders. Mr. Dell recused himself from all Board discussions and from the Board vote regarding the transaction.

A Special Committee was formed after Mr. Dell first approached Dell’s Board of Directors in August 2012 with an interest in taking the company private. Led by Lead Director Alex Mandl, the Special Committee retained independent financial and legal advisors J.P. Morgan and Debevoise & Plimpton LLP to advise the Special Committee with respect to its consideration of strategic alternatives, the acquisition proposal and the subsequent negotiation of the merger agreement.

The Special Committee also engaged a leading management consulting firm to conduct an independent analysis, including a review of strategic alternatives for Dell and opportunities for the company as a public entity, and thereafter engaged Evercore Partners.

The merger agreement provides for a so-called “go-shop” period, during which the Special Committee — with the assistance of Evercore Partners – will actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals. The initial go-shop period is 45 days. Following that period, the Special Committee will be permitted to continue discussions and enter into or recommend a transaction with any person or group that submitted a qualifying proposal during the 45-day period. A successful competing bidder who makes a qualifying proposal during the initial go-shop period would bear a $180 million (less than 1 percent) termination fee. For a competing bidder who did not qualify during the initial go-shop period, the termination fee would be $450 million.

Mr. Mandl, lead director of Dell’s Board of Directors, said: “The Special Committee and its advisors conducted a disciplined and independent process intended to ensure the best outcome for shareholders. Importantly, the go-shop process provides a real opportunity to determine if there are alternatives superior to the present offer from Mr. Dell and Silver Lake.”

Mr. Dell said: “I believe this transaction will open an exciting new chapter for Dell, our customers and team members. 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.”

“Michael Dell is a true visionary and one of the preeminent leaders of the global technology industry,” said Egon Durban, a Silver Lake Managing Partner. “Silver Lake is looking forward to partnering with him, the talented management team at Dell and the investor group to innovate, invest in long-term growth initiatives and accelerate the company’s transformation strategy to become an integrated and diversified global IT solutions provider.”

Following completion of the transaction, Mr. Dell, who owns approximately 14 percent of Dell’s common shares, will continue to lead the company as Chairman and Chief Executive Officer and will maintain a significant equity investment in Dell by contributing his shares of Dell to the new company, as well as making a substantial additional cash investment. Dell will continue to be headquartered in Round Rock, Texas.

The transaction will be financed through a combination of cash and equity contributed by Mr. Dell, cash funded by investment funds affiliated with Silver Lake, cash invested by MSD Capital, L.P., a $2 billion loan from Microsoft, rollover of existing debt, as well as debt financing that has been committed by BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets (in alphabetical order), and cash on hand. There is no financing condition.

The transaction is subject to other customary conditions, including receipt of required regulatory approvals, in addition to the Dell stockholder approvals described above. The transaction is expected to close before the end of the second quarter of Dell’s FY2014.

For further information regarding all terms and conditions contained in the definitive merger agreement, please see Dell’s Current Report on Form 8-K, which will be filed in connection with this transaction.

J.P. Morgan and Evercore Partners are acting as financial advisors and Debevoise & Plimpton LLP is acting as legal advisor to the Special Committee of Dell’s Board of Directors. Goldman, Sachs & Co. is acting as financial advisor and Hogan Lovells US LLP is acting as legal advisor to Dell. Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Mr. Dell. BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets (in alphabetical order) are acting as financial advisors to Silver Lake, and Simpson Thacher & Bartlett LLP is acting as legal advisor to Silver Lake.


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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik