Michael Dell, the CEO and founder of Dell Inc., has offered $24 billion in a deal that will take Dell out of the stock market and make the company private. The offer is approximately worth $13.65 per share to stockholders and is 25% higher than the $10.88 closing share price of January 11 when the rumored buy out started.
Dells’ board members met just last night and voted on the deal with a unanimous result of approving the privatization of the company.
As a result of this Michael Dell will become the majority owner of the company controlling a 14% stake. He will also remain the CEO of the company.
The deal hasn’t closed yet as it still has to pass the scrutiny of regulators. It is expected that by the company’s second quarter of this fiscal year it will be completed.
This development came after weeks of rumors that the world’s number three PC company was going private. This in effect releases them from having to report the company finances every quarter and fiscal year to its stockholders.
The company did not specify as to what they will do differently once they go private. Before the buyout, the board had considered several other options such as recapitalization and even breaking up the company.
Discern Inc. analyst Cindy Shaw said that “A private Dell is likely to more aggressively cut costs, in our view. But we think merely restructuring only postpones the inevitable, creating a value trap. Dell needs to do more than reduce its cost structure. It needs to innovate.”
Financing of this deal will come from cash and equity of Michael Dell, the $2 billion loan coming from Microsoft, cash from Silver Lake which is a private equity firm, and debt financing from an unspecified consortium of banks.
As of now the company is in a 45 day go shop mode where they are awaiting higher offers from interested parties.
According to Bill Nygren, who manages Oakmark Fund and Oakmark Select Fund, which have a $250 million position in Dell, “Though we were hoping for a higher price, we trust that the Dell board has properly done its job by conducting a process open to any third party offers and reviewing all strategic options. Should we hear evidence to the contrary, we’ll raise a ruckus.”
Some of Dell’s competition in the industry had only bitter things to say about the deal. HP said that the result would leave Dell’s customers and innovation at the curb and vowed to take advantage of the situation. Lenovo on the other hand said that this is a “distracting financial maneuvers and major strategic shifts” while highlighting their strong position in the industry.