It's official: Dell's going private in $24.4B deal

The computer giant today confirms that CEO Michael Dell and investment firm Silver Lake are paying $13.65 per share, while Microsoft is contributing a $2 billion loan.

Dell

Dell will be taken private for $24.4 billion, or $13.65 a share, in a transaction announced today that will allow the company to try to turn itself around without the pressure of shareholder expectations.

Founder and CEO Michael Dell, who owns about 14 percent of Dell's common shares, teamed up with Silver Lake Partners to acquire the company. Microsoft is also kicking in a $2 billion loan.

The deal, which is subject to regulatory and shareholder approval, should be wrapped up before the close of Dell's fiscal second quarter, which ends in July. Following completion of the transaction, Michael Dell will continue to lead the company as CEO. He also will maintain a significant equity investment in the company by contributing his shares of Dell to the new company, as well as by making a "substantial," additional cash investment.

Here's what Michael Dell had to say today, via press release:

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.

Shares in Dell have soared since details first emerged about a possible deal. The offer price represents a 25 percent premium over the company's closing price of $10.88 on January 11, the last day before Bloomberg first reported a potential deal. Shares recently grew a fraction to $13.36, trading below the offer price, which indicates shareholders likely aren't expecting a higher bid.

Dell, which has long been one of the world's largest PC makers, has been struggling of late. Before the deal, the company's stock had lost about a third of its value over the past year as it shifted focus away from its traditional computer market to providing business products in areas such as networking and storage. It has made many acquisitions over the past several years and has said it will continue to do so. However, there are worries about how fast those businesses are taking off.

The company has said it remains committed to the PC market. But Dell and rival Hewlett-Packard have had trouble competing with up-and-coming Asian rivals like Lenovo and Asus. Lenovo in late 2011 surpassed Dell to become the world's second-largest provider of PCs.

As Michael Dell said, going private is designed to give the company the time to turn itself around.

Rival HP, meanwhile, today issued a comment that suggests it will be doing all it can to lure away Dell customers.

"Dell has a very tough road ahead. The company faces an extended period of uncertainty and transition that will not be good for its customers. And with a significant debt load, Dell's ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell's customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity."

Lenovo, which in 2011 surpassed Dell to become the world's second-biggest PC maker, declined to comment on the specifics around the Dell deal but said it remains confident in its own strategy.

"We believe that the financial actions of some of our traditional competitors will not substantially change our outlook," the company said in a statement. "Our strategy is clear, our financial position is healthy, and our business is very strong -- so we are focused on our products, customers, and overall execution rather than distracting financial maneuvers and major strategic shifts."

Dell itself has shown no mercy to other rivals facing hardships. When asked in late 1997 about what should be done to fix the then-struggling Apple, Michael Dell famously quipped that he would "shut it down and give the money back to the shareholders."

Michael Dell
Michael Dell at the Web 2.0 Summit in October 2011. James Martin/CNET
And when HP was considering spinning off its PC operations, Michael Dell mocked the move via Twitter and other outlets and said many customers were leaving HP for Dell.

Dell said in a statement today that the transaction will make the company stronger and will allow it to create "differentiated, simplified, and easy-to-manage" products.

"We are committed to completing this transaction as seamlessly as possible such that our customers are not affected in any way," the company said. "Dell has always been focused on delivering a best-in-class customer experience and our top priority is to ensure that customer needs are met."

Dell's going-private process has been closely chronicled by various publications, but Dell today gave its official rundown of the process.

Michael Dell first approached Dell's board of directors in August 2012 with an interest in taking the company private (though he had said even before that time that he'd be open to such a move). A special committee of independent directors was then formed to consider Dell's strategic options, the acquisition proposal, and the subsequent negotiations of the merger agreement. The committee also hired bankers and consultants to help with the process.

Dell's board of directors, acting on the special committee's recommendations, ended up unanimously approving the agreement. Michael Dell didn't participate in board discussions or the vote about the deal.

The merger pact provides for a "go-shop" period of 45 days to evaluate any alternative offers. If someone makes a successful competing bid during the go-shop period, that person or group will be subject to a $180 million termination fee. Any competing bidder who didn't make an initial offer during the go-shop period will face a termination fee of $450 million.

Alex Mandl, lead director of Dell's board, noted that 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."

The deal will be financed through a combination of cash and stock contributed by Michael Dell, cash provided by Silver Lake investment funds, cash invested by MSD Capital, the $2 billion loan from Microsoft, rollover of existing debt, cash on hand, and debt financing from BofA Merrill Lynch, Barclays, Credit Suisse, and RBC Capital Markets.

Updated at 7:20 a.m. PT with additional details, at 8:55 a.m. PT with HP comment, and at 12:20 p.m. PT with comments from Lenovo and Dell.

 

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