Michael Dell is to buy back the world’s number three personal computer (PC) manufacturer, Dell, for $24.4bn (£15.5bn). Mr Dell will buy back total control of the firm that carries his name with technology private equity investor, Silver Lake, as part of a cash deal priced at $13.65 per share, which is a 25% premium over the company’s valuation in January.
The deal is subject to the usual regulatory approvals but if it goes ahead it will be the biggest leveraged takeover since the banking crisis of 2007, suggesting that treasurers should perhaps get ready for a new round of mergers and acquisition (M&A) now that the economy is slowly improving in some developed countries like the US. A rush of M&A activity is unlikely but the improving financial markets, thanks to the easing of the eurozone crisis and scaling of the US fiscal cliff, mean a thaw in the deal-making permafrost evident since the crash is underway.
Finance for the Dell deal is coming from four banks – Barclays, Credit Suisse, BofA Merrill Lynch and RBC Capital Markets – and a $2bn loan from Microsoft, which raises speculation about how much influence the Seattle-based firm will have on what operating systems and apps, browsers and so forth the PC manufacturer will use. JP Morgan and Goldman Sachs are acting as advisory banks to Dell the company and Dell the man respectively.
Michael Dell is already the chief executive and chairman of Dell but his stake had been reduced to only 14% since he took the company he founded 29 years ago to the stock market in 1988. He founded the company at the age of 19, operating out of his dorm room at the University of Texas.
By eliminating the need to deliver strong results every quarter to shareholders Dell should get greater flexibility in his attempts to turn the ailing firm around, which has suffered from the rise of even lower-cost rivals such as China’s Lenovo, and the ‘flight to quality’ towards Apple and Samsung which has hollowed out the middle ground and lead to tablets and smartphones replacing Dell’s core desktop and laptop products in the consumer popularity stakes.
Dell most likely intends to convert the business from a hardware manufacturer into an information technology services firm, following the money now that the commoditisation game has played out, and mirroring IBM’s much earlier move away from hardware and into services.
“I believe this transaction will open an exciting new chapter for Dell, our customers and team members,” said Michael Dell in a prepared statement, “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 recognise 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.”
Before the deal can be finalised, Dell’s board has stated that it will conduct what it refers to as a “shopping” period of 45 days during which it will actively seek any competing better priced offers. The deal is also subject to the usual customary conditions, such as the receipt of regulatory approval, so it is not expected to close before the end of the second quarter of Dell’s FY2014.
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