Privatisation Talks For Dell Plagued With Pricing Disagreements – DELL, MSFT, JPM, GS

Northern, WI 02/07/2013 (wallstreetpr) – In August 2012, Michael Dell, founder of Dell Inc. (NASDAQ:DELL) approached its board and proposed to make the company private. Michael had founded the company in 1984 in his Texas University dormitory.

His proposition spurred a series of serious talks from Dell Inc. (NASDAQ:DELL)’s home base Texas, to as far as the states of California and New York. The price they finally agreed upon was $13.65 per share. During this period, the talks broke up a lot of times over disagreements with the price of the shares.

In what may be one of the biggest leveraged buyouts, Dell was finally bought out by Michael Dell and Silver lake Management LLC for a price of $24.4 billion on Feb. 5. The buyout is being seen as Dell’s endeavor to restore his legacy and turn around the struggling company.

Michael Dell is committed to his position in the company, opines Brian Gladden, Chief Financial Officer of Dell. From a financial perspective the billionaire is .Putting “putting a lot of capital into this process”, he said.

If the deal is finalized  Dell Inc. (NASDAQ:DELL) will become majority stakeholder in the company. While $1.4 billion will be invested by Silver Lake, Microsoft Inc. (NASDAQ:MSFT) will be investing $2 billion, banks will be investing funds over $13 billion. Dell itself will be contributing around $4 billion.

This move will enable Dell Inc. (NASDAQ:DELL) to rise above the challenges that it faces in a shrinking market for PCs and venture into mobile & cloud computing without having to put up with stock market uncertainties and investors’ vigilance.

Board members tried to convince the shareholders that it was a move taken by the management and would not affect them. JP Morgan Chase & Co. (NYSE:JPM) and Goldman Sachs Group Inc.(NYSE:GS) advised Dell in this buyout. Mort Pierce of M&A group of New York based legislators White & Case LLP said, “The independent directors will usually pick a bank that is independent, which means it didn’t have a great deal of contact with the management that is participating in the buyout.”

The board is also reported to have taken Boston Consulting Group Inc., (BCG) on-board for further deliberation. An alternative discussed by the board and BCG was to split the PC business from the software and data-centric business.

Dividend-Recapitalization was also discussed as an option. However, in the end it was decided that a buyout would be the best way forward for the shareholders as well.

World’s largest private equity fund, Silver Lake is specializes mainly in technology investment and funds. It was no coincidence then, that it was invited to be Dell’s partner.

Microsoft Corp. (NASDAQ:MSFT) loaned an amount of $2 billion in this deal. Steve Ballmer, CEO of Microsoft, and Mike Dell mutually agreed at this amount. Dell Inc. (NASDAQ:DELL)’s computers will come equipped with Windows as part of the deal.

Disagreements also broke out over the tough stance Dell would take in the event of Silver Lake backing out. The conditions made by Dell to protect the interests of the shareholders included an exorbitant $750 million fee and the right to initiate proceedings against Silver Lake. Further Silver Lake was restricted to bid only once.

Dell Inc. (NASDAQ:DELL) shares were declined by 0.30% and currently trading at $13.48.

Microsoft Inc. (NASDAQ:MSFT) shares declined by 0.16% and currently trading at $27.34.

JP Morgan Chase & Co. (NYSE:JPM) shares declined by 0.02% and currently trading at $48.61.

Goldman Sachs Group Inc. (NYSE:GS) shares were up by 0.01% and currently trading at $151.13.

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).

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