Dell Stays Quiet On Silver Lake Partners $23B Leveraged Buyout Deal

 @DavidZie
on February 04 2013 4:03 PM
Dell
Dell Inc., headed by Michael Dell, remained mum on reports it was close to completing a leveraged buyout with Silver Lake Partners. Reuters

Dell Inc. (NASDAQ:DELL), the No. 3 PC maker, remained mum on reports it was close to completing a leveraged buyout with Silver Lake Partners valued as much as $23 billion, the largest in the technology sector. Dell representatives said the company plans to announce fourth-quarter results on Feb. 19.

The Round Rock, Texas-based maker of PCs that’s increasingly shifting to selling services, storage and software,is valued around $23 billion, based on Monday’s share price of $13.26, down 38 cents, still about $75 billion below its previous highs of eight years ago.

Under the buyout, Silver Lake Partners, a Menlo Park, Calif., leader in technology private equity deals, would invest at least $1 billion in a new company that would acquire the existing Dell, along with Chairman Michael S. Dell’s 15.7 percent stake in the company.

Then Dell, 47, would add his private investment firm’s $700 million to the pile, along with $2 billion from longtime partner Microsoft Corp. (NASDAQ:MSFT), the No. 1 software company.

The remainder would be financed from as much as $15 billion in loans syndicated by Barclays (NYSE:BCS), Bank of America (NYSE:BAC), Credit Suisse (NYSE:CS) and Royal Bank of Canada (NYSE:RY).

A senior executive of a bigger computer company said Dell has been a lot more aggressive in the server and services area in recent years but declined to comment on whether a private deal would make the company more competitive.

Still, any deal would present various problems for Dell, as well as its financial adviser, JP Morgan Chase (NYSE:JPM).

First, the deal would require rescheduling or refinancing the company’s current debt of about $9.3 billion. Current bondholders would have to agree to a deal, now that the “new” company would be saddled with additional debt that would have to be relinquished through operating cash flow. In the 12 months through last November, that was about $3 billion.

Then Dell would have to manage its current cash and investments, valued around $14.2 billion, most of which is outside the U.S. Repatriating it would incur a hefty tax charge, but the money is also useful, because Dell has major global operations including factories in Brazil, China, Ireland, Malaysia and the Philippines.

Shares of Dell have gained nearly 30 percent in the past two months, when Bill Shope, who covers the company for Goldman Sachs (NYSE:GS), suggested Dell was interested in a buyout. The rationale would be that private status would free the company to transform itself into a better competitor against service providers headed by Hewlett-Packard Co. (NYSE:HPQ), the No. 1 computer company, and International Business Machines Corp. (NYSE:IBM), the No. 2 computer company.

A sale at the higher price would be a boon to Dell’s biggest current outside investors, mainly mutual fund complexes such as private Vanguard Group, as well as T. Rowe Price (NASDAQ:TROW). But some smaller investors said they might vote against a sale, because it might undervalue the company or burden it with high extra debts.

Shares of Dell fell 36 cents to $13.27 shortly before the Monday close, valuing the company at $23.1 billion. A year ago, they were at $18.06.

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