updated 02:40 pm EST, Wed January 16, 2013
Leveraged buyout offer worth up to $25 billion dollars
More information has begun to surface on the rumors of Dell's potential transition to a privately-held company. According to the Wall Street Journal, a combined group of investors are in discussion with Dell for a leveraged buyout, offering between $13 and $14 per share. The group includes Silver Lake Partners spearheading the deal, at least one other investor, and Michael Dell himself.
According to sources familiar with the matter, the current plan requires Silver Lake and other investors to arrange for $2 billion in equity, Michael Dell would put his stock into the deal, which is worth $3.6 billion by itself. The group would also access some of Dell's corporate stash of cash on hand, and take on new debt of $15 billion to meet a purchase price of between $22 and $25 billion dollars.
Potential complications with completing the deal include the involvement of Michael Dell, who owns nearly 16 percent of the company. His involvement in the deal could be seen as stock price manipulation, and may be viewed as a conflict of interest. Additionally, the deal ranks amongst the largest buyouts in the 21st century, which could induce some additional scrutiny by regulatory agencies.
"Dell beautifully aligned their entire model to fit a particular world," said Jan Rivkin, a professor at Harvard Business School. "When that world changed they found it very hard to alter the model." Dell had been shifting away from retail sales, into a service and support-oriented company with some success. The combination of persistent economic struggles worldwide with a changing market has reduced Dell's market capitalization from $100 billion to approximately $23 billion today.
Despite the company's financial condition, it remains profitable -- bringing in about $3 billion in clear profit per year. Private equity firms like Silver Lake can use the funds to pay down the debt incurred used to purchase the company, or pay dividends. Bond analyst Stanley Martinez at Legal and General believes that "the timing and the valuation could be exceptionally clever" for a buyout attempt, given Dell's depressed stock price. The stock has dropped nearly 39 percent over the last five years.