Dell goes private as shareholders approve $24.9 billion deal
By Agam Shah and Chris Kanaracus
Shareholders have voted to approve a $24.9 billion buyout of the company by founder and CEO Michael Dell and investment firm Silver Lake Partners.
They will be paid $13.75 per share, an increase from the original offer, as well as an additional cash dividend of $0.13 per share, for a total of $13.88 per share, according to Thursday’s announcement.
The transaction was approved by those holding a majority of Dell’s outstanding shares, the company said. An exact tally wasn’t immediately available.
For Michael Dell, the vote marks a victory in a long and grueling fight to take the company private.
“I am pleased with this outcome and am energized to continue building Dell into the industry’s leading provider of scalable, end-to-end technology solutions,” he said in a statement.
A long winding road
Dell on February 5 announced that Michael Dell and investment firm Silver Lake had offered $24.4 billion, or $13.65 per share, to buy out the company. The offer, subject to shareholder approval, included a $2 billion loan from Microsoft, and debt financing from Bank of America, RBC Capital Markets, Merrill Lynch, and Barclays.
Dell is betting that as a private company operating outside the scrutiny of Wall Street, it will be better able to execute its strategy to push into high-margin products and services.
The vote had already been delayed twice, which analysts said was because Michael Dell and Silver Lake failed to find enough shareholder backing for its buyout proposal.
Dell’s shareholders have expressed mixed opinions on the deal. Advisory groups like Institutional Shareholder Services have advised shareholders to vote for the Dell buyout plan in light of the deteriorating PC market. But some of Dell’s major shareholders, including Carl Icahn, Yacktman Asset Management and Southeastern Asset Management, believe the company is being undervalued and criticized the proposal.
After the initial buyout offer from Michael Dell and Silver Lake, Dell went through a “go-shop process” for 45 days in which other parties were invited to make counteroffers. On March 25, Dell announced that two groups—one led by Blackstone Group and the other by Icahn—made counterproposals to buyout Dell. Blackstone offered a deal in excess of $14.25 per share, while Icahn and affiliates offered $15.00 per share for a leveraged buyout.
Ultimately Blackstone withdrew its offer, stating the eroding PC market and Dell’s financial profile as reasons. Icahn and Southeastern made multiple counteroffers from May through July in which shareholders would have the option to continue holding Dell shares and get back cash or stock. But a special committee appointed by Dell’s board to review counteroffers backed the Dell/Silver Lake offer, and raised questions about how Icahn’s deal would be financed.
Under pressure from Icahn, however, Dell and his associates sweetened their proposal for the company, offering $13.75 per share and a special dividend of $0.13. As part of the new proposal, shareholders would also get the regular third-quarter dividend of $0.08 per share. New guidelines for the shareholder vote were also part of the deal. Under the new rules only “yes” or “no” votes would count, with abstentions left out. Initially, voting rules called for abstentions to be counted as “no” votes. The Special Committee announced that it had accepted the deal on Aug. 2.
Finally, on Monday, Icahn and his associates conceded they were fighting a losing battle and halted their attempt to buy Dell.
Icahn’s withdrawal left only the buyout offer from Dell and Silver Lake on the table.
Back to basics
Dell was founded by Michael Dell in 1984, and made its name as a PC maker. In recent years Dell’s focus has shifted to the enterprise, and the company has made dozens of acquisitions to fill out its hardware, software and services offerings. While Dell has been profitable, the company’s move from a PC to an enterprise company has yet to translate into strong financial results, and investors have lost patience. By taking Dell private, Michael Dell hopes to move away from the bright lights of Wall Street and help the company achieve long-term growth even if it has to withstand a few rough quarters.
Dell has maintained that the company’s PC and enterprise business will remain intact even if the company goes private under the Dell-Silver Lake buyout offer. However, analysts have said that the PC business might be the first domino to fall if the company is restructured once it goes private.
Dell’s strategy emulates IBM, Hewlett-Packard and Oracle, which package software, hardware and services as part of integrated services offerings. Dell has found success in the midmarket, and is also beefing up its hardware and software offerings as companies move IT infrastructures to virtualized and cloud-based environments.
The vote to go private places Dell on firm footing to pursue its strategy, according to one industry observer.
“It puts a lot of the uncertainty behind the company,” said analyst Jeff Kaplan, managing director and founder of Thinkstrategies.
“The uncertainty drives people away,” Kaplan added. “We’ve seen a dramatic decline in demand for Dell’s services. Given the dramatic shift in customer preferences and buying behavior, the sooner they can pursue that strategy, the better opportunity they have to succeed.”
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