Business Case Studies,Corporate Governance & Business Ethics Case Study, Dell Going Private

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Dell Going Private


Code : GOV0062

Year :

Industry : IT Hardware

Region : United States

Teaching Note:Not Available

Structured Assignment :Not Available

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Background Dell, a multinational technology corporation based in Round Rock, Austin, in the US, earned revenue of US$62 billion in the year that ended on February 3, 2012. The company was started as PC’s Ltd. in 1984 by Michael when he was in his freshman year at the University of Texas , Austin . In the very first year of its establishment, the company achieved sales of US$6 million. This further grew to US$69 million in the fiscal year 1987. In the same year (1987), the company started its international operations by setting up a subsidiary in the UK....

Dell Going Private On February 5, 2013, the company announced the definitive merger agreement with Michael and Silver Lake. Under the agreement, Dell shareholders (excluding Michael and some other members of management) would get US$13.65 in cash for each outstanding common share of Dell to surrender their ownership in favor of Michael and Silver Lake. According to the company’s press release, the US$13.65 per share price was 25% higher than the closing price of US$10.88 on January 11, 2013, which was the last trading day before the rumors about Dell going private were published. In addition to this, US$13.65 per share price also represented a 37% premium over the average closing share price during the previous 90 calendar days ending January 11, 2013...

Fading Dell? An industry expert stated that falling financial performance, declining PC market, rising burden of filing commitments, low valuation, and quarter-by-quarter scrutiny by investors were issues plaguing Dell...

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Dissatisfied Dell Shareholders Not many shareholders of the company were in favor of the Michael and Silver Lake LBO buyout. Southeastern, the largest outside shareholder of Dell with an 8.5% share, refused to accept the LBO proposal saying it undervalued the company. In a letter addressed to Dell's Board of Directors, Southeastern stated, “US$13.65 clearly represents an opportunistically timed bid to take the Company private at a valuation far below Dell's intrinsic value and deprives public shareholders of the ability to participate in the Company’s substantial future value creation." According to Southeastern, the Dell share was worth about US$24 ...

Counter Offers Initially, Dell's LBO deal looked simple with only one offer from Michael and Silver Lake. However, in the 45-day “go shop” period, 70 parties participated. After the period ended, the Special Committee announced in a press release on March 25, 2013, that only two parties, Blackstone Group L.P. (Blackstone) and Icahn, had given in their preliminary proposals to acquire Dell. Mandl said, "We are gratified by the success of our go-shop process that has yielded two alternative proposals with the potential to create additional value for Dell shareholders. We intend to work diligently with all three potential acquirers to ensure the best possible outcome for Dell shareholders, whichever transaction that may be." ...

What Next? According to an analyst, "Dell initially presents itself as an interesting LBO candidate, given its large net cash position and inexpensive valuation, a transaction would be challenging given the tax effects on foreign cash, large deal-size, and exit multiple uncertainty." Some experts were concerned that Dell’s ability to acquire businesses would be limited after it went private...

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