After a month-long speculation,
) finally announced its decision to go private in a leveraged
buyout agreement (LBO). Founder Michael Dell will acquire the
company at a purchase consideration of roughly $24.4 billion,
much higher than the market expectation of $23.0 billion.
Dell's shareholders will be rewarded with $13.65 per share in
cash. The transaction is expected to be completed by the second
quarter of fiscal 2014.
The LBO agreement has been signed by the founder Michael Dell,
) and Silver Lake Partners (a private equity firm). The LBO will
be financed by Michael Dell's 15.7% stake and $700.0 million
cash, $2.0 billion from Microsoft and $1.0 billion from Silver
Lake, roll-over of existing debt and new debt financing.
The unconditional debt financing will be done jointly by BofA
Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.
The purchase price reflects a 25.0% premium on the closing price
on Jan 11.
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Law firms such as Rigrodsky & Long, P.A., the Rosen Law firm,
and Bernstein Liebhard LLP are looking into any instance of
breach of fiduciary duty by Dell's board of directors. Moreover,
shareholders' approval is pending. Any untoward situation could
lead to a delay in completing the deal.
The idea behind the privatization is to stay away from public
scrutiny and expectations and better focus on business growth and
profitability. But Dell's dependence on the PC market remains the
main problem. Also, Dell lacks a firm footing in the servers,
storage and cloud computing space, which is a sheer negative in
) and to some extent,
). Another competitor,
) is dominating the tablet space.
Considering the situation, it is hard to predict Dell's success
story, unless the company opts for diversification.
Dell's go-private strategy could also create other problems for
the company. Without the support of public money through common
shares, Dell will be required to pay high interest charges for
its debt. If it is unable to generate desired results, the
company could go out of business. This could prove to be an
out-an-out positive for H-P.
On the positive side, founder Michael Dell (with his majority
share) will be better positioned to decide operational and
strategic changes that could help the company to come out of the
Improvement in the PC market is less likely in the near term due
to the slower-than-expected adoption of Microsoft's Win 8. But
industry observers expect a marginal growth of 2.0% in PC
shipments in 2013, which is a silver lining.
Currently, Dell has a Zacks Rank #4 (Sell).