Dell Buyout Deal: Things you need to know

Written on:February 7, 2013
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Michael Dell

Michael Dell has orchestrated a $24.4bn leveraged buyout offer for the computer maker he founded nearly 30 years ago

Michael Dell has announced leveraged buyout of the Dell Inc on 6 February 2013 for a whopping $24.4 billion (£15bn) in partnership with private-equity firm Silver Lake Partners. There had been indications of such a move for over a month now and finally the news of Dell Buyout has been broken officially. There could be far reaching implications and consequences for the entire PC manufacturing industry with this buyout. This also indicates the severe pressure on the segment with advent of touch controlled smart portable computing devices which have wooed away a major chink of the PC customer base.

Dell Buyout deal details: The Dell buyout deal is a leveraged buyout by Michael Dell who pledged $ 500 million (£319m) of his own wealth in addition to the shares worth $3.73 billion (£2.38bn) which he holds. The Silver Lake Partners have pledged $1.4 billion (£890m) in equity whereas Microsoft has announced $ 2 billion (£1.2bn) in loan in addition to many leading US banks such as Barclays plc, bank of America and Credit Suisse Group. This is by far the biggest leveraged buyout after the recent recession and is likely to set a trend for many such moves in the industry. Under the Dell buyout deal, the shareholders shall get $13.65 (£8.7) for every share they possess. Though the buyout is yet to be formally approved by the shareholders and regulators of Dell Inc it is being hoped that the deal will be a reality before the end of Dell’s current financial year. Michael Dell shall continue as the CEO and chairman of the company.

Watch Out! Says HP: The Dell buyout deal which is certain to have far reaching impacts on the entire PC industry is being closely followed by the major competitors. Microsoft which has been associated with the move right from the beginning is yet to make any official statement on the deal. Microsoft is more interested in ensuring that PC manufacturers stick to its operating systems and do not develop new OS or try out Google’s Android for PCs which may steal its business. This probably is the reason for supporting the deal by Michael Dell.

The primary competitor to Dell Inc, Hewlett-Packard (HP) however has been vociferous about its standpoint with respect to this leveraged buyout. HP has publicly disapproved of the Dell buyout deal stating that such deals will curb innovations in the industry and work against the interest of the share holders in the long run. HP also added that such a move clearly indicates the high pressure of debts that Dell Inc is under, reiterating that HP will take full advantage of the situation and use this opportunity to cater to Dell customers who are seeking other avenues.

Bumpy ride ahead for Dell? The official announcement of Dell buyout has put an end to the protracted speculations that have been doing the rounds for past several months. However, the road ahead for Dell is far from being smooth. There has been a constant dip in PC sales in the last few years and with the debt load pulling it down it has not been able to foray into new areas of late. It will be interesting to watch out for new offerings from Michael Dell, though he has already been at the helm of the affairs since the past five years.

     

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