February 15, 2013, 4:00 PM — The growing number of shareholders voicing opposition to Dell's US$24.4 billion plan to go private appears to be putting the company increasingly on the defensive, raising questions about the terms of the deal.
This is not good news for the company, the world's number-three PC maker in terms of shipments, which is betting that as a private company able to operate outside of the intense scrutiny of Wall Street, it will be better able to execute its strategy to push into high-margin products and services.
Heightening the pressure on Dell, shares in the company were trading at $13.79 Friday afternoon, higher than the $13.65-per-share offer from Michael Dell and his buyout partners. The trading indicates that at least some market players are betting that the company will have to raise its offer.
After weeks of intensifying rumors, Dell announced on Feb. 5 that Michael Dell is teaming up with investment firm Silver Lake to buy the company. The deal is being financed through cash and equity contributed by Dell, cash from investors affiliated with Silver Lake, cash from MSD Capital, L.P., a $2 billion loan from Microsoft, rollover of existing debt and debt financing from BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.
In the face of announcements from several large shareholders opposing the deal, Dell this week issued filings with the U.S. Securities and Exchange Commission that highlight details about how the deal came about. In a filing Thursday, the company said that Michael Dell first approached the company's board of directors with the idea to go private in August last year. A special committee was formed to consider the proposal as well as other ideas to shore up the company's business.
Various plans were considered as the company's business continued to decline. In the third quarter, revenue decreased 11 percent year over year to $13.7 billion, while earnings per share amounted to $0.27, down 45 percent, as desktop and mobility product sales sagged.
The special committee considered various strategies, including plans "seeking to separate the Company's end user computer business; seeking to dispose of the Company's financial services business; seeking to accelerate the Company's strategic transformation through acquisitions; and seeking a sale to, or merger with, a strategic buyer," according to the SEC filing.
The filing also reveals that Michael Dell agreed to lower the value of his own shares to get the deal done.
"Mr. Dell and related persons agreed that their shares to be rolled over in the proposed transaction would be valued only at $13.36 per share as opposed to the $13.65 price offered to the Company's unaffiliated stockholders," according to the filing.