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February 5, 2013

Michael Dell takes Dell private

$24.4bn leveraged buyout with Silver Lake Partners the largest since financial crisis began

By Jason Stamper

After weeks of speculation, Dell finally announced today that it is indeed going private, in a $24.4bn deal that will see founder Michael Dell become the largest individual shareholder with a stake of 14%.

The other big investor is private equity firm Silver Lake, with which Michael Dell will pay $13.65 per share in cash for the world’s third biggest computer maker.

The price is a 25% premium on Dell’s closing share price of $10.88 on January 11, just before the rumours of the buy-out began – so it’s obvious why Dell’s board voted in favour of the deal last night. However, it’s still way off the $17.61 that the shares were trading for a year ago, and offers little premium over Dell’s recent stock price.

"I think the key question here is will shareholders approve this deal, because there is practically no premium where the stock is trading," Sterne Agee analyst Shaw Wu said.

The deal is being financed by cash and equity from Michael Dell, cash from Silver Lake, cash from Michael Dell’s MSD Capital investment firm, a $2bn loan from Microsoft and debt financing from Bank of America Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.

The parties expect the transaction to close before the end of the second quarter of Dell’s fiscal 2014.

News of the buyout talks first emerged on January 14, although Michael Dell had previously acknowledged thinking about going private as far back as 2010.

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Dell has been losing out to rival Chinese PC maker Lenovo and also struggled in the face of competition from tablet and smartphone makers.

"This is an opportunity for Michael Dell to be a little more flexible managing the company," said FBN Securities analyst Shebly Seyrafi. "That doesn’t take away from the fact they will have challenges in the PC market like they did before."

 

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