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Dell Sale 'Makes Strategic Sense'

By Craig Galbraith
February 05, 2013 - News

**Editor's Note: Please click here for a recap of the biggest channel-impacting mergers in Q4 2012 or here for the biggest M&A during that time in the service provider-BSS/OSS spaces.**

Dell's co-founder – Michael Dell – and global technology investment firm Silver Lake, are buying the computer giant for $24.4 billion and taking it private.

Michael Dell, who owns about 14 percent of the company, first approached Dell's board in August, announcing his intentions.

The merger agreement provides for a so-called “go-shop" period, during which a special committee – with the assistance of Evercore Partners, an investment banking advisory firm – will solicit and consider other offers.

“I believe this transaction will open an exciting new chapter for Dell, our customers and team members," said Michael Dell. "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."

Under the terms of the deal, shareholders would get $13.65 per share; Dell stock was trading at $13.39 as of 11:31 a.m. ET on Tuesday.

Michael Dell will continue to serve as chairman and CEO, maintaining a significant equity investment by contributing his shares to the new company, as well as making a substantial additional cash investment. Dell will continue to be headquartered in Round Rock, Texas.

Other cash for the deal will come from funds affiliated with Silver Lake, an investment by MSD Capital L.P., a $2 billion loan from Microsoft, rollover of existing debt, as well as debt financing that has been committed by a handful of banks, including BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets, and cash on hand.

Assuming it gets regulatory approval and meets closing conditions, expect the deal to wrap before the end of the second quarter of Dell's 2014 fiscal year.

As customers turn toward tablet computers and sales of PCs start to flag, Dell and other computer giants have started to diversify their businesses in the last couple of years. Dell, in particular, has turned toward being a supplier of enterprise-grade IT infrastructure. Going private might make it easier to handle investors' concerns about change, analysts told the Wall Street Journal.

Describing the sale as "open[ing] a new chapter in the IT industry, analysts at Ovum say it makes strategic sense.

"Dell’s ambition is nothing less than offering the entire IT stack with supporting services. A significant risk likely to face Dell during this transition is that enterprises and public sector organizations cut back on their purchases 'until the dust settles,'" noted Carter Lusher, chief IT analyst at Ovum. "... Ovum recommends that CIOs need to [assess] the risk to their infrastructure and put into place plans should Dell’s radical hardware, software, and services shifts require changes to procurement plans.”

Follow senior online managing editor @Craig_Galbraith on Twitter.

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