Dell buyout talks advancing, loans being lined up

News started to break on the 14th January that Dell were about to begin buyout talks with the ultimate goal to take the company private. Well now it seems that Silver Lake Partners, the company looking to seal the deal, has lined up four major banks to help finance the deal.

Credit Suisse, Bank of America Merrill Lynch, Barclays and RBC are all lined up to provide whatever financing the company needs to push the deal through. The sources that have reported these issues have remained anonymous, due to the details of the potential deal not being made public.

If this deal completes successfully, it would be one of the biggest since the global economy began crashing down in 2008. JPMorgan is working with Dell, currently worth $19 billion, from their side.

The deal is rumoured to be working out at $13.50 to $14 per share, with an equity investment from Silver Lake and other potential investors of roughly $2 billion.

With Michael Dell owning 244 million shares in Dell, he owns 14% of the company. And he is going to be the key to pushing this deal through. Sanford Bernstein analyst Toni Sacconaghi has said:

[The odds of a buyout] are probably low, given its size and our expectation that it may require about $4 billion in equity. We see the rationale for a Dell (leveraged buyout) as being largely opportunistic given low valuation and interest rates, as we don't see any obvious restructuring opportunities or unique exit strategy.

The deal is proving challenging as the PC market is stuttering, most in thanks to the shift towards more mobile devices such as tablets and smartphones for peoples computing needs.

The deal would also increase Dell’s already sizable $9 billion debt, making it hard for them to acquire smaller companies in the future. Barclays analyst Ben Reitzes has said a move would only make sense “if Dell's earnings power was stable - and backed by real recurring revenues.” He went on to add:

Obviously, with Michael Dell's ownership of $3 billion and net worth of about $14.6 billion the possibility of a go-private transaction cannot be ruled out.

So, the New Year is bringing more than just new technology. Even though Dell had been in dipping it’s toes in this kind of deal for a while, the talks got much more heated and serious at the end of last year.

Could this be a good move by Dell, or could this signal the gradual exit of Dell from certain areas of the IT world? Only time will tell.

Source: Reuters | Images courtesy of Bloomberg and IB Times

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Got an XPS and it is great. Powerful CPU, 16GB RAM and even a 3D screen. My only complain is the power plug which is a disgrace. I don't need a mag-plug like those "creative" people out there, but at least something that doesn't come of if I got a little breeze coming through the window

My bet is that they are going to restructure their operations and sell the restructured company to Microsoft, who will want to start manufacturing PCs, Tablets, Laptops, and Phones directly and thus have an "Apple like" business model.

Microsoft needs a HW division (beyond XBox and peripherals) if they want to start making "devices" as they've stated for their future, but there are only 3 real PC OEM options for them as they would have to support the enterprise as well as consumers. Lenovo would never be bought due to Chinese regulation, HP is a corporate mess and doesn't have the support reputation that Dell has. Dell still has great enterprise support and HW manufacturing division.

I think they are going private to clean house, streamline their operations, and ultimately sell themselves to Microsoft in 2-4 years. It just makes the most sense to me as the margins for these OEMs continue to fall.

Edited by Drewidian, Jan 17 2013, 3:34pm :

That would be a pretty epic move. Though, I don't think MS really wants to get into desktop/laptop/server hardware. Strategically, what they really want are for people to use (and purchase) their software in one way or another. Getting further into tablet or even phone hardware would serve their purposes by increasing Win8/RT and WP8 usage, but taking over the part of the market Dell controls would do nothing for their user base.

Could this be a good move by Dell, or could this signal the gradual exit of Dell from certain areas of the IT world? Only time will tell.

I see it as a way for the company to incubate restructure and re-emerge as a services company. Being under the scrutiny of market shareholders demands for profits make this type of shift near impossible for a publicly held company.

As the article states, time will tell.

This is quite interesting because as a former Dell employee I had a considerable amount of Dell stock in my Dell 401k portfolio. Then in 2012, the 401k fund manager forced me ( and all other Dell 401k participants ) to reduce the amount of Dell stock to no more than 20% of my Dell 401k account despite my protest against this action. They did this under the cover of "portfolio diversification is good" but I wonder if this was connected in some way to what you're reporting here.

For us people out of the loop, why would a company want to make itself privately owned again? It seems like they'd just be piling up billions of dollars of debt to give control back to a few board members so they can take more risks.

shareholders for one. instead of having any large group buying your shares and harassing you all the time, the private shareholders are more lenient,and are on the same page as the company is.

another thing,they don't have to report **** publicly,keeping their upcoming products and services on the down low. its a competitive advantage.

third, all the time and money spent for their quarterly reportings can be saved and used up for something more productive.

public and private both have advantages,but it depends on what the company is trying to achieve. Dell wants to regain full control of their company,work at their pace,and this is beneficial to them.

The main reason is that you can change focus. You can shift from being public, and constantly having to be concerned with, "how will this be received by the market (shareholders)", to "how will this benefit the business". I work for a company that is privately held, and one of our chief competitors is public. As a result, we're more nimble, and have a totally different outlook on our business than they do, because we're not beholden to market pressure.