Dell, the world's third-biggest maker of personal computers, is going private in a deal valued at $24.4 billion (€18bn), undertaking the biggest leveraged buy-out since the financial crisis.
Chief executive officer Michael Dell and Silver Lake Management will pay $13.65 a share, the companies said today in a statement. That's 25 per cent more than the closing price of $10.88 on January 11th.
Michael Dell is taking back majority control of the company he started almost three decades ago. The stock has lost more than half its value since January 2007, when Dell resumed his role as CEO, amid investor dismay with management's failure to cope with upstart competitors in mobile and cloud computing.
By going private after a quarter-century as a publicly traded company, Dell is seeking more leeway to cut jobs and adopt strategy shifts needed to court high-margin customers spending billions on data centers. "They obviously see the writing on the wall," said Daniel Morgan, a senior portfolio manager at Synovus Trust Co. in Atlanta.
"They understand what the challenges are and realize they need to refurbish what they are doing."
Even as being private shields Round Rock, Texas-based Dell from answering to public shareholders on a quarter-by-quarter basis, it subjects the company to new constraints, including the addition of debt. Following the transaction, Michael Dell will be chairman and chief executive, maintaining "significant equity", according to the statement.
Dell's relationship with Ireland stretches back to 1990 when it opened a manufacturing centre in Limerick to serve Africa, Europe and the Middle East. However, restructuring in recent years has led to a reduction in its presence in Ireland, although it still employs some 2,000 people.
Microsoft Corporation is contributing $2 billion, according to the statement. Silver Lake, a technology-focused private-equity firm, was working with partners to line up about $15 billion in funds for the buyout. Dell, which trails Hewlett-Packard and Lenovo Group in the personal computer market, was halted in US trading. Its stock plummeted 31 per cent last year as it struggled to adapt to the industry-wide shift to smartphones, tablet computers and cloud computing services. Consumers and companies are shunning PCs in favor of mobile devices made by Apple and Samsung Electronics, and Dell lags behind Oracle, Cisco Systems and IBM in data-center hardware, software and services.
Dell has seen its fortunes rise and fall since holding an initial public offering in 1988. CEO Dell, who founded the company with $1,000 in 1984 in his University of Texas dorm room, was viewed as an industry wunderkind, demonstrating that he could sell complex products more efficiently and conveniently than was thought possible. By cutting out middlemen and honing manufacturing so companies and consumers got exactly the PC configuration they wanted, Dell grabbed share and piled up profit even with lower operating margins than rivals like IBM and Compaq, fueling an almost two-decade boom.
Eight years after the IPO, Dell's stake was worth more than $1 billion. Dell ceded the CEO role to chief operating officer Kevin Rollins in 2004 only to come back to the helm in 2007 after the company lost its top PC spot to Hewlett-Packard and earnings fell short of estimates. The company was also beset at the time by an accounting scandal that later resulted in a $100 million settlement with the US Securities and Exchange Commission.
(Additional reporting Bloomberg)
