The purchasing group would include private equity firm Silver Lake Partners, company founder and CEO Michael Dell and an investment firm that manages Michael Dell’s money (MSD Capital). No specifics yet on how much each one would provide.
Microsoft (MSFT) also would provide a $2 billion loan. This is fairly surprising, given that Microsoft had been assumed to be participating on an equity basis. In a statement, the software giant said:
Dell shares had been trading around $11 per share before reports surfaced earlier this month of a potential buyout. They closed trading last Friday at $13.63 per share, before slumping back down to a $13.27 per share close yesterday. In general, today’s agreement provides a 25% premium to trading just before news of the pending deal leaked, but just two pennies over where shares traded just two days ago (which, I guess, means traders priced the deal almost on the nose). Not surprisingly, we’ve already begun to see “investigation” press releases from plaintiff’s attorneys.
Over the past year, Dell shares have traded as low as $8.69 per share and as high as $18.36 per share.
The agreement includes a 45-day “go-shop” period, during which time Dell can solicit superior offers. Don’t expect that to happen, however, given the lack of other private equity interest and Michael Dell’s alignment with the Silver Lake group. Moreover, the agreement would require the rival bidder — not Dell — to pay a $180 million termination fee (or $450 million if they came in after the go-shop period expires).
If completed, Dell would become the largest leveraged buyout since the financial crisis, and one of the ten largest LBOs of all time.
Some have suggested that the deal could trigger a rash of new mega-buyouts, but the consensus seems to be that Dell is a special case. First, the cash requirements were eased by the personal fortune and existing share capital of Michael Dell, who would control the company post-buyout. It also didn’t hurt that a giant tech incumbent with loads of cash — Microsoft — had a vested interest in keeping America’s second-largest PC maker afloat.
Then there was the massive financing package, which was largely enabled by Dell’s existing debt structure and its massive cash stockpile that could be used as collateral. Plus, of course, the macro interest rate environment that would apply to all potential deals. No specifics yet on how the cash is being utilized, as much of it is currently overseas and could create significant tax implications is brought back stateside.
On the other hand, it would be fair to say that Dell has caused private equity firms to take a new look at other undervalued tech companies, albeit not ones quite so large.
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