Dell in $24.4 Billion Founder-Led Deal to Go Private

Michael Dell, chairman and CEO of Dell Inc. (Getty Images)ROUND ROCK, Texas -- Slumping personal computer maker Dell (DELL) is bowing out of the stock market in a $24.4 billion buyout that represents the largest deal of its kind since the Great Recession dried up the financing for such risky maneuvers.

The complex agreement announced Tuesday will allow Dell's management to attempt a company turnaround away from the glare and financial pressures of Wall Street. Dell stockholders will be paid $13.65 per share to leave the company on its own. That's better than $11 level the stock was hovering at before word of the buyout talks trickled out last month, but a steep markdown from the shares' price of $26 less than five years ago.

Once the sale to a group of investors that includes investment firm Silver Lake is finalized, Dell's stock will stop trading on the Nasdaq nearly 25 years after the Round Rock, Texas, company raised $30 million in an initial public offering of stock. Microsoft Corp. (MSFT) is investing in the deal with a $2 billion loan.

The company will solicit competing offers for 45 days.

The IPO and Dell's rapid growth through the 1990s turned its eponymous founder Michael Dell into one of the world's richest people. His fortune is currently estimated at about $16 billion . Michael Dell, who owns nearly 16 percent stake in the company, will remain the CEO after the sale closes and will contribute his existing stake in Dell to the new company.

Dell's sale is the highest-priced leveraged buyout of a technology company, surpassing the $17.6 billion paid for Freescale Semiconductor in 2006.

The deal is the largest leveraged buyout of any type since November 2007 when Alltel Corp. sold for $25 billion to TPG Capital and a Goldman Sachs subsidiary. Within a few months, the U.S. economy had collapsed into what would be its worst recession since World War II.

Leveraged buyouts refer to deals that saddle the acquired company with the debt taken on to finance the purchase.

Dell's decision to go private is a reflection of the tough times facing the personal computer industry as more technology spending flows toward smartphones and tablet computers. PC sales fell 3.5 percent last year, according to the research group Gartner Inc., the first annual decline in more than a decade. What's more, more tablet computers are expected to be sold this year than laptops.

The shift has weakened long-time stalwarts such as Dell Inc., fellow PC maker Hewlett-Packard Co., PC chip maker Intel Corp. and PC software maker Microsoft Corp.

Like the others, Dell's revenue has been shriveling and its stock has been sinking amid worries that the company might not be able to regain its technological edge.

Both Dell and its larger rival, HP, are trying to revive their fortunes by expanding into business software and technology consulting, two niches that are more profitable than the fiercely competitive - and currently shrinking - PC industry.

The PC downturn has hurt Microsoft by reducing sales of its Windows operating system to makers of desktop and laptop machines. As the world's third largest PC maker, Dell is one of Microsoft's biggest customers.

By becoming a major Dell backer, Microsoft could gain more influence in the design of the devices running on a radically redesigned version of Windows that was released in late October. The closer ties with Dell, though, could poison Microsoft's relationship with HP, the largest PC maker, and other manufacturers that buy Windows and other software.

Michael Dell and his financial backers are betting it will be easier to engineer a turnaround without having to pander to the stock market's fixation on whether the company's earnings are growing from one quarter to the next.

Taking the company private is a major risk, however. It will leave Dell Inc. without publicly traded shares to entice and reward talented workers or to help buy other companies.

As part of its shift toward business software and technology services, Dell already has spent $9 billion on acquisitions in the past three years.

Leveraged buyouts also require companies to earmark some of their incoming cash to reduce the debt taken on as part of the process of going private. The obligations mean Dell will have less money to invest in innovation and expansion of its business.

The buyout will mark a new era in another technology company that began humbly and matured into a juggernaut.

With just $1,000, Michael Dell started his company as PCs Limited in his dorm room as a freshman at the University of Texas at Austin. He would go on to revolutionize the personal computer industry by providing a way for companies and consumers to order custom-made machines at a reasonable price - first on the phone, then on the Internet.

Initially valued at $85 million in its 1988, Dell went on a growth tear that turned the company into a stock market star. At the height of the dot-com boom in 2000, Dell reigned as the world's largest PC maker with a market value of more than $100 billion.

But Dell began to falter as other PC makers were able to lower their costs. At the same time, HP and other rivals forged retail relationships that gave them the advantage of being able to showcase their machines in stores where consumers could check them out before buying. By 2006, HP had supplanted Dell as the world's largest PC maker.

With its revenue slipping, Dell's market value had fallen to $19 billion before the mid-January leaks about the buyout negotiations.

Increase your money and finance knowledge from home

Small Cap Investing

Learn now to invest in small companies the right way.

View Course »

Income Investing

Grow your nest-egg.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Dumb move, they should have paid attention to what took place at Gateway, and learned from that mistak.

February 06 2013 at 8:59 AM Report abuse rate up rate down Reply

"The PC downturn has hurt Microsoft by reducing sales of its Windows operating system"

Go back to selling XP.....A good stable platform that they never improved on.
As for Dell, that's a mistake I'll never make again.

February 06 2013 at 7:22 AM Report abuse rate up rate down Reply

I have two Dell PC's and have had a fair share of problems with both. After ten years of tinkering, I can now fix virtually all my own problems, from reinstalling the operating system to replacing hardware. It is interesting, how we think of Dell and others PC makers as US Companies; in reality they are nothing more than assembly plants... Everything inside these machines is made some place other than in the USA. Power supplies, memory chips, DVD/CD drives, etc, are made in China, Japan, Korea, Tiawan, and even in Canada. I srill have the original software that came with the machines. I'm assuming this stuff is still American made, but I'm not sure. Anyway, it's not all bad, as most replacement hardware is reasonably priced, especially when purchase thru Discount Electronics here in Austin. Making one's own repairs, gives a real sense of satisfaction and keeps a lot of dollars in one's pocket as well.

February 06 2013 at 12:23 AM Report abuse rate up rate down Reply

I was always fascinated when I visited Dell's Round Rock production facilities. Especially their 3rd party warehouse JIT delivery systems, real time metering of inventory to the line, production constraint quick response teams (line bottle necks virtually monitored via boiler room screens visible on tours), high quality emphasis and the general professionalism of the staff. But high tech evolution, outsourcing and a myriad survival business strategies must be executed if a business wants to survive. So it goes.

February 05 2013 at 9:49 PM Report abuse +1 rate up rate down Reply

So.... what becomes of my Dell from H3ll now? Will tecchie support shift from Mumbai to, say, Kabul... or Pyongang???

February 05 2013 at 8:04 PM Report abuse rate up rate down Reply

sounds like a bad deal foir long term shareholders. Could have used their balance sheet and cash to finance a large share buy-back that would allow shareholder's desiring an exit a way out but let long term investors stay in. However, Silver Lake and Michael Dell would not get as rich under that plan-and it appears that they only care about shareholders with large blocks of stock.
There will undoubtedly be shareholder derivative suits following from this and I wouldn't want to be an outside director of DELL because your life is going to be dominated by lawyers etc for the next decade!

February 05 2013 at 11:12 AM Report abuse rate up rate down Reply
1 reply to tduester's comment

I believe Mikey Dell doesn't care one whit... he's already made his billion$ off of us. Wall Street probably doesn't care, either... with Dell stock plummeting like a space shuttle fuel tank, Wally is likely saying "good riddance"...

February 05 2013 at 8:06 PM Report abuse rate up rate down Reply