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Chris works from BRW's Sydney newsroom. He has previously written and edited in print and online for titles including The Australian Financial Review and The Australian.

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Microsoft kicks in $US2bn to help Michael Dell buy his company back

Published 06 February 2013 09:37, Updated 26 November 2013 18:35

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Microsoft kicks in $US2bn to help Michael Dell buy his company back

Back in the saddle ... Michael Dell’s $US24.4 billion buyout deal for the company he founded will leave him with a majority stake. Photo: Reuters

Microsoft has taken a punt on Michael Dell’s plans to turn around the company that bears his name, lending $US2 billion to Dell and Silver Lake Capital’s bid to take the company private.

Dell announced in a statement that it had signed a $US24.4 billion, $US13.65 cash-per-share merger agreement with Mr Dell and tech investment group Silver Lake.

Bloomberg reported the agreement would be the largest leveraged buyout since the global financial crisis.

Dell executives said the company’s founder approached the board with a proposal in August 2012. Under the acquisition plan he will remain chairman and chief executive.

  • ● Dell shareholders receive $US13.65 per share cash
  • ● Transaction value: Approximately $US24.4 billion
  • ● Transaction implies a 37 per cent premium

Dell’s board said it would enter a 45 day “go-shop” period to open consideration for competing offers.

It said the offer represented a 37 per cent premium over Dell’s average closing share price during the previous 90 days ending January 11. It represents a 25 per cent premium on the $US10.88 Dell shares were trading at before rumours of the looming deal broke.

“Before this agreement the company’s core PC business was deteriorating more than its new enterprise business and the net effect was weak revenue growth,” FBN Securities analyst Shebly Seyrafi told Bloomberg.

“Now they have the opportunity to be more aggressive and flexible, fix things and turn it around. Normally for deals like this we see a 15 to 25 per cent premium, so I think this price is reasonable.”

Reuters reports the deal will give Mr Dell a majority stake in the company.

Michael Dell started the company in 1984, successfully pioneering a direct selling model in an industry that had been built on manufacturers using channel partners to reach customers.

He stepped down as CEO in 2004 but retook the helm in 2007. However, since taking over from Kevin Rollins, Mr Dell has struggled to retain its place in a technology hardware market that has moved on from desktop and laptop PCs towards smartphones and tablets.

He acknowledged that investors in the private company would probably need to be patient while his turnaround strategy played out.

“Dell has made solid progress executing this strategy over the past four years, but we recognise that it will still take more time, investment and patience, and I believe our efforts will be better supported by partnering with Silver Lake in our shared vision,” he said.

“I am committed to this journey and I have put a substantial amount of my own capital at risk together with Silver Lake.”

The agreement is to be funded through a combination of cash and equity provided by Mr Dell, cash funded by investment funds affiliated with Silver Lake, a cash investment by an investment fund affiliated with MSDC Management, a $US2 billion loan from Microsoft, rollover of existing debt, as well as debt financing from groups including BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets, as well as cash.

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