Dell Goes Private in $24.4B LBO - Analyst Blog
06 2월 2013 - 7:39PM
Zacks
After a month-long speculation, Dell Inc.
(DELL) 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,
Microsoft Corp. (MSFT) 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.
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
comparison to IBM Corp. (IBM), EMC
Corp. (EMC) and to some extent, Hewlett-Packard
Co. (HPQ). Another competitor, Apple Inc.
(AAPL) 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
difficult situation.
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).
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