$24bn Dell buyout deal moves closer

By Sooraj Shah
22 Jan 2013 View Comments
Dell founder Michael Dell

Dell is said to be close to being bought out for about $24bn (£15.1bn) as the crisis amid PC makers takes its toll on one of the world's largest technology firms.

The company, which has switched its focus from producing PCs to providing IT services, could be bought as early as this week by a group led by private equity firm Silver Lake Management, boutique investment firm Evercore Partners and Dell's founder and chief executive Michael Dell.

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Sources told Bloomberg that the two private equity firms are to advise a special committee of the board and test whether the company could get a better offer. At the moment the deal is likely to value Dell between $23bn (£14.5bn) and $24bn (£15.1bn).

According Bloomberg's sources, Dell sees the hiring of Evercore as a way to protect itself against lawsuits and any criticisms of the buyout. Michael Dell, the biggest shareholder in the technology firm, will roll his 15.7 per cent stake into the buyout.

Silver Lake has had success in buyouts of technology firms in the past, most notably its 2000 buyout of disc drive maker Seagate, which produced a return of five times its investment, and the Microsoft acquisition of Skype, which returned 3.1 times the investment in an 18-month period, the Financial Times reports.

According to figures from analysts IDC, global PC sales fell by 6.4 per cent in the fourth quarter of 2012 - the first time that sales had declined in five years. Dell was one of the hardest hit, with a fall of 20.8 per cent. The firm sits in third place behind HP and Lenovo on the worldwide charts, and only fifth in the EMEA region, falling behind Acer and Asus in addition to the global top two.

The slump in PC sales has also affected firms that do not manufacture PCs; most recently, the world's biggest computer chip manufacturer Intel had a drop in profit as a result of the decline.

Competition from tablet makers, most notably Apple's iPad, Google's Nexus and Amazon's Kindle Fire, have affected PC sales as consumers opt for touch-based, application focused devices. All five of the top PC makers have failed to gain any significant share in the tablet market, and still count on PCs as their main revenue generators.

Instead of focusing on the consumer, Dell is attempting to focus itself as more of an enterprise services firm like IBM. Going private may help it to achieve this aim by restructuring its corporate hierarchy and focusing on datacentre equipment instead of PCs.

However, some executives in privacy equity claim that there is little value in taking Dell private.

"It has already been through major cost-cutting. What would we do that Michael Dell hasn't already done?," one told the FT.

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