Buyout of Dell could make financial sense

When he was asked at an investment conference whether he had considered that sort of move for his company, Dell said simply “Yes.” When Bernstein Research analyst Toni Sacconaghi pressed for a further explanation, the CEO said simply, “No comment.” Dell Inc. officially still has no comment on the subject.

But numerous reports from the financial media this week said Dell Inc. is discussing a potential leveraged buyout, one that, if it happens, could be the largest U.S. corporate buyout in five years.

The Wall Street Journal on last Tuesday said Dell is working with two investment first TPG Capital — formerly known as Texas Pacific Group — and Silver Lake Partners, both of which have taken other tech companies private. Kevin Rollins, Dell's former CEO, is a senior adviser to TPG.

While some financial analysts and industry experts said the size of such a deal — which probably would be more than US$20 billion — would make it difficult to pull off, other analysts said that the deal makes sense because interest rates are near historic lows, because Dell's stock price is devalued, and because Michael Dell owns nearly 16 percent of the company's stock and is determined to turn it around.

Michael Dell, at age 47, is one of the nation's richest tech executives. But only about a quarter of his estimated total wealth of more than US$14 billion is tied up in his company's stock. He owns nearly 16 percent of the company's stock, an amount that was worth about US$3.5 billion at the market's close Tuesday.

The real motivation for Dell, analysts say, is to remake and strengthen the company he founded in 1984 when he was a freshman at the University of Texas-Austin.

“This will be his monument to forever,” said analyst Rob Enderle with the Enderle Group. “Michael is at an age where you realize that mortality is real and you start thinking long-term. He really wants his company to outlast him.”

Analysts said any buyout deal for Dell Inc., the world's third-largest personal computer maker, could take at least a month to put together and could be a challenge to finance despite prevailing low interest rates.

It would be the biggest buyout of a company since the financial crisis of 2008 brought such deals to a screeching halt. Analysts say a Dell buyout deal could be valued at more than US$20 billion.

“Now is the time to do it,” Enderle said. “A large portion of this is going to be debt-financed. If you are going to do it, you are going to do it when interest rates are incredibly low.

Taking the company private would give Dell the freedom to make bigger moves to restructure the company without worrying about push back from stock analysts and stock investors.

“It allows you to operate more strategically,” Enderle said. “You can make big gambles. And he doesn't have to sweat the financial analysts pummeling him every quarter for any move that he makes.

“He would be pulling the company off the track and putting it into the shop and making the changes it needs so he can take it out and race it again.”

Going private would give Dell the chance to revamp the company more thoroughly and complete the transformation journey it began five years ago.

1|2|Next Page>>

SHARE CLOSE
Blogger		Google+
Live Journal		Plurk
Stumble Upon

Tweet

	PREVIOUS ARTICLE
	NY bank Gordian Group to advise Hostess union

NEXT ARTICLE
Oil falls, trading muted on US holiday

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

 Receive China Post promos
 Respond to this email

Submit