Thursday 27 November 2014

Dell returns to private hands in deal worth $25bn

Peter Flanagan New Technology Correspondent

Published 06/02/2013 | 04:00

DELL is set to become a private company once again after the company sealed the biggest leveraged buyout (LBO) since the financial crisis began.

The computer giant, which employs more than 2,500 people at its offices in Limerick, is to leave the stock market in a deal worth some $24.4bn (€17.9bn).

Such an agreement opens the way for Dell to revamp its business as it evolves from a pure manufacturing operation to focus more on business solutions and software services.

The deal, which is being led by the private equity firm Silver Lake Capital and company founder and chief executive Michael Dell, pictured, will see the LBO partners pay around $13.35 a share to do the deal, about a 25pc premium on the company's closing share price the day before the plan was announced.

Mr Dell will roll over his 15.6pc stake in the company, valued at around $3.6bn.

He will also use his own personal funds. Silver Lake will contribute $15bn while Microsoft will put in about $2bn.

If the deal is completed, it will be the biggest LBO since 2007 and one of the biggest of all time.

The rationale for such a deal has been clear almost since news of the plans began to leak a fortnight ago.

The company – one of the two biggest computer makers on the planet – has been grappling with falling PC sales in recent years and has steadfastly refused to get involved in pure tablet computing.

Investors

Mr Dell, who returned to head the company in 2008, is said to want to transform the company into a business consultancy firm along the lines of IBM, which was built on making computers but has no manufacturing business anymore.

Doing that in the glare of the public markets is considered difficult however, as the company would have to satisfy investors every quarter when it presents its interim results.

By moving to a private company, Dell removes that imperative and gives it far greater flexibility in how it goes about those changes. There will be little pressure, at least in the short term, for the company to maintain profitability and margins while it tries to change itself.

Shares in Dell rose marginally in New York, trading at $13.38.

The planned privatisation is the latest twist in Dell's story, which has historically been a roaring success but has struggled in recent years.

By selling directly to consumers and cutting out retailers, the company revolutionised the computer business and gave consumers the freedom to "build" a PC in the exact specifications he or she wanted.

The business model proved highly lucrative, making Dell himself and other investors billions.

He stepped down as chief executive of the company he founded in 2004 but returned to the top job three years later as the company was hit by an accounting scandal and lost its position as top computer-maker in the world.

It recovered but has struggled since 2010 as tablet computers led by Apple's iPad eat into its market. The shares are down 31pc in the past year.

Irish Independent

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