Is Michael Dell Aiming for Majority Control to Take Dell Inc. Private?

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According to unidentified sources with Bloomberg familiar with the deal, Dell Inc. founder and CEO, Michael Dell, is in the process of buying majority control of the Round Rock, Texas-based company. The move may be a step within a process to take the company private.

Michael Dell, who owns 15.7 percent of the company, may contribute anywhere from $500 million to $1 billion of his personal funds to provide equity financing. Silver Lake Management, LLC and Microsoft may each provide additional funding.

Lackluster sales in PCs have led to declining revenue and stock prices for Dell. As mobile and cloud computing continue to gain popularity, Dell's survival as a company requires that it adjust its efforts toward these technologies.

Taking the company private would allow Michael Dell to make these adjustments more easily. He would avoid the likely stock price fluctuations and public scrutiny that would come from such a transition.

Michael Dell's interest in Dell Inc. is approximately $3.6 billion. After adding the $500 to $1 billion of his personal funds, he would have over half the funds for the $8-9 billion equity check. Additional funds for the takeover could come from debt financing. Silver Lake and Microsoft would contribute about $1-2 billion each and some of the cash Dell Inc. reported having at the end of the third quarter, 2012 may also be included, according to sources with Bloomberg familiar with the deal.

Michael Dell is moving forward cautiously, as any attempt to take Dell Inc. private may have conflicts. The special committee of the board of Dell Inc., their advisers and Michael Dell are examining all possible alternatives such as a sale to other buyers, before proceeding with any deal.

The special committee is being advised by Evercore Partners Inc., which has approached other possible buyers, but so far none has stepped forward. Other options for Dell Inc. would include a dividend recapitalization. The company would take on debt to increase shareholders' value.

Dell Inc. and Silver Lake have had negotiations about a deal that would take the company private at approximately $14 per share, valuing the company at about $23 billion. A group led by Silver Lake has acquired $15 billion in funds to buyout Dell Inc.

As successful as Dell Inc. has been in the PC industry, the reality is that PCs are a declining market. To do nothing would put Dell Inc. in the same position as buggy whip makers at the birth of the automobile era; it would not matter how good your product was if it became obsolete.

Michael Dell's apparent actions are a necessary move in a changing market. What remains to be seen is whether or not Dell Inc. will have the same success in mobile and cloud computing as they did with the PC.




Edited by Brooke Neuman
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TechZone360 Contributing Writer

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