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Dell To Be Taken Private In $24.4 Bln Deal


Struggling PC maker Dell Inc. (DELL) said Tuesday that it has agreed to be acquired and taken private in a $24.4 billion deal by the company's founder, Chairman and Chief Executive Officer Michael Dell in partnership with private equity firm Silver Lake.

Michael Dell and Silver Lake will pay $13.65 in cash for each Dell share, which represents a premium of 25% over Dell's closing stock price of $10.88 on January 11, the last trading day before rumors of a possible going-private deal were first published. The buyers will acquire all of the outstanding shares of Dell not held by Mr. Dell and certain other members of management.

The deal will be financed through a combination of cash and equity contributed by Mr. Dell, cash funded by investment funds affiliated with Silver Lake, cash invested by MSD Capital, L.P., a $2 billion loan from software giant Microsoft Corp. (MSFT), rollover of existing debt, as well as debt financing that has been committed by BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets, and cash on hand.

According to the company, Mr. Dell first approached Dell's board of directors about a buyout in August. The company then formed a special committee and hired independent financial and legal advisors to consider strategic alternatives as well the acquisition proposal and conduct the subsequent negotiation of the merger agreement.

The deal is expected to close before the end of the second quarter of Dell's fiscal year 2014. Dell will continue to be based in Round Rock, Texas.

Mr. Dell, who owns about 14% of Dell's common shares, will continue to lead the company as chairman and chief executive officer. He will continue to hold a significant stake in the company by contributing his shares of Dell to the new company, as well as making a substantial additional cash investment.

The merger agreement provides for a "go-shop" period - initially for 45 days - during which Dell can actively solicit alternative proposals. A successful competing bidder who makes a qualifying proposal during the initial go-shop period would bear a $180 million termination fee, while for a competing bidder who did not qualify during the initial go-shop period, the termination fee would be $450 million.

"I believe this transaction will open an exciting new chapter for Dell, our customers and team members. 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. 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," Mr. Dell said in a statement.

Dell, founded in 1984 by Michael Dell in his University of Texas dorm room, was once a darling of Wall Street and the world's largest PC maker that boasted a market capitalization above $100 billion. Dell's market capitalization has fallen to $23.24 billion now. It is currently the world's third largest PC maker. It had lost the global PC lead to Hewlett-Packard Co. (HPQ) in 2006 and lost the second position to China's Lenovo Group Ltd (LNVGY) in the third quarter of 2011. According to Gartner, Lenovo overtook HP as the world's top PC vendor in the third quarter of 2012.

Dell was among the worst sufferers among the technology giants during the recession In order to drive growth, Dell resorted to acquisitions, cut thousands of jobs and closed plants to remain competitive.

Of late, Dell is struggling with lower sales for desktops and laptops as consumers switch over to tablet PCs such as the iPad from Apple Inc. (AAPL). According to IDC, PC sales over the holiday period slid for the first time in more than five years, and Dell's shipments of computers in the fourth quarter fell 21%.

Going private is likely to allow Dell to focus on hardware, software and services for businesses without the scrutiny and limitations of being a public company.

If the deal goes through, it would be the the biggest leveraged buyout since the financial crisis.

Meanwhile, in a statement issued after the deal was announced, arch rival HP said, "Dell has a very tough road ahead. The company faces an extended period of uncertainty and transition that will not be good for its customers. And with a significant debt load, Dell's ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell's customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity, " HP said.

Dell shares are currently trading at $13.40, up 12 cents. The shares trade in a 52-week range of $8.69 to $18.36.

by RTTNews Staff Writer

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