PC and server vendor Dell Inc. has agreed to be taken private in a $24.4 billion leveraged buyout led by Silver Lake Partners and Michael Dell, the tech industry legend who founded the company in his dorm room and built it into a juggernaut. The long-rumored deal comes at a crucial point in the life of the company, which is facing challenges to its core markets for PCs and volume servers, and is seeking to build its own suite of cloud computing services.
Under the terms of the agreement, Dell stockholders will receive $13.65 per share in cash, a 25 percent premium to the price of Dell’s shares before deal rumors went public. Michael Dell, who owns approximately 14 percent of Dell’s common shares, will continue to lead the company as Chairman and Chief Executive Officer and will contribute his shares to the new company, as well as making a "substantial additional cash investment."
“I believe this transaction will open an exciting new chapter for Dell, our customers and team members," said Michael Dell. "We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise.
"It Will Take More Time"
"Dell has made solid progress executing this strategy over the past four years, but we recognize that it will still take more time, investment and patience, and I believe our efforts will be better supported by partnering with Silver Lake in our shared vision," Dell continued. "I am committed to this journey and I have put a substantial amount of my own capital at risk together with Silver Lake, a world-class investor with an outstanding reputation. We are committed to delivering an unmatched customer experience and excited to pursue the path ahead.”
Dell's once-dominant position in the consumer computing market has been challenged by the shift to mobile devices and tablets, as well as smaller notebook formats like netbooks and ultrabooks. Dell has been an important player in the data center market with its Data Center Solutions (DCS) unit, which has focused on custom products to support bulk sales of more than 1 million servers to the largest cloud computing companies. DCS has developed a modular data center design used by customers including Microsoft and eBay.
Last year, Dell announced plans to build a global network of data centers to support its own suite of cloud computing offerings, and has opened facilities in London and Quincy, Washington. The company's cloud push has provided it with a services play in the fast-growing cloud computing market, where its hardware position is being challenged by rise of open hardware designs emerging from the Open Compute project.
The deal with Silver Lake allows Dell to shed the pressures of meeting Wall Street's quarter-to-quarter expectations, and presumably focus on a deeper turnaround effort.
Silver Lake has been an active investor in the data center sector, backing Vantage Data Centers. Silver Lake has also worked closely on several deals with Microsoft, which will kick in $2 billion in debt financing to support the deal. In addition to equity investments from Silver Lake, Michael Dell and his MSD Capital and the debt from Microsoft, the deal will be backed by loans from BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.
"Michael Dell is a true visionary and one of the preeminent leaders of the global technology industry," said Egon Durban, a Silver Lake Managing Partner. "Silver Lake is looking forward to partnering with him, the talented management team at Dell and the investor group to innovate, invest in long-term growth initiatives and accelerate the company's transformation strategy to become an integrated and diversified global IT solutions provider."
"Microsoft has provided a $2 billion loan to the group that has proposed to take Dell private," the company said in a statement. "Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future. “We're in an industry that is constantly evolving. As always, we will continue to look for opportunities to support partners who are committed to innovating and driving business for their devices and services built on the Microsoft platform.”