This is one the largest LBOs in history, the largest since the financial crisis, and an audacious in swimming upstream against technological trends. There is still a 45-day go-shop period during which Dell will entertain competing bids, though without Mr. Dell's stake this is unlikely.
The deal structure is interesting, with Silver Lake contributing cash, Microsoft a $2 billion loan, and Mr. Dell simply rolling over his stake (though his fund, MSD Capital, will contribute some cash, too). The rest is debt financing from Barclays, Credit Suisse, Bank of America, and Royal Bank of Canada.
Apple came pretty close to having the lights turned off. Microsoft stepped in and injected some cash. http://news.cnet.com/2100-1001-202143.html or from Wikipedia:
At the 1997 Macworld Expo, Steve Jobs announced that Apple would join Microsoft to release new versions of Microsoft Office for the Macintosh, and that Microsoft made a $150 million investment in non-voting Apple stock.[62]
This is a myth. Microsoft bought a symbolic amount of stock. At the time Apple had over a billion dollars of cash in the bank. Microsoft was making over $300M a year in revenue from the Office product on the Mac platform, so it was in their best interest to keep up development. The only reason they were going to stop was to strong-arm Apple.
Back then Apple wasn't in great shape, running at a marginal loss or profit, but other companies at the time, like Compaq, were bleeding hundreds of millions of dollars in losses per quarter.
Apple is into Hardware and Software, Oracle is now into Hardware. Some exec at MSFT has seen how good a user experience you can give if you control the entire cycle from hardware to software.
If they entered the Hardware market directly, they compromise Windows - for example companies would distribute Linux with their machines more openly and they could lose the "XXX recommends WinX". So they could do this indirectly by owning Dell privately and pulling the puppet strings.
Secondly if you want to run a massively parallel search engine like bing - you need a lot of hardware. They would probably seat a specialised hardware team at Dell and take the machines at cost.
Could someone help Michael Dell buy a properly fitting suit? The guy looks like a gorilla with the cuffs nearly covering his hands. I'm not saying he needs a $10k Savile Row cut-to-fit but it'd be nice if the guy talking about a $24 billion dollar deal doesn't look like he bought a suit off the rack at JC Penny's.
This is weird - if Dell was a woman, everyone would comment on his (her) ill-fitting two-piece. But this is either a nice balancing of the sexism divide we have seen recently, or its bike-shedding.
I don't really care what he wears. But the fact that he wears a suit means he feels it's important, and the fact that it's very bad means either he or someone who works for him has atrocious attention to detail.
If you are going to wear a suit, wear one properly.
He would be ahead (at least in my mind, not that my opinion matters) if he just wore properly fitting slacks and a polo vs an ill fitting suit. He'd be better off wearing a hoodie and jeans too because at least then we know he doesn't have any respect for the idea of "dress is important"
It reflects poorly on him. With Zuckerberg we know he has no respect for the Wall Street orthodoxy because he steadfastly refuses to wear a suit. I don't care for him personally but I respect the position he seems to be taking.
But Dell is wearing a suit which means that he in some way feels it's necessary to do so. But he does such a bad job of it that even a glance makes it obvious he doesn't know what he's doing. Or the person he paid to get him a suit did a horrible job. Given that he's "running" a $24 billion dollar company I would like to see better attention to detail on a thing that he must think is important, as evidenced by his wearing a suit.
It could just say that he lacks imagination or doesn't feel that his attire is something on which one should spend a lot of mental capital. A suit is practical, easy, and non-threatening and picking up a bunch of cheap ones is a simple way to look professional without a lot of thought. It's really easy to look like a slob in a t-shirt and jeans and I suspect that a lot of SV CEOs put a deceptive amount of effort into their laid-back appearance.
It's worth noting that Dell is a Texas company, and the t-shirt and jeans look is still a pretty specifically SV trend.
Who cares? Does the ability to buy a tailored suit correlate positively with investment acumen? If a speaker's appearance convinces you to invest your money, you're a sucker.
While not huge in the grand scheme of things, Dell has probably been the biggest vendor of Ubuntu machines, mostly in India and other poor countries. For $2 billion Microsoft gets to tell them to kill any such Ubuntu or Android product line-ups, and any research involving them. How is this good for Dell itself as a company, especially with the Windows/PC market going down? Is Dell really letting Microsoft turn them into another Nokia?
I've used Dells for a number of years and been pretty happy, but this does have me a bit worried. I was really pleased the one time I did have a problem, while living in Austria, with a machine I'd bought in the US: very quick service and no hassles to fix it, so the fact that it's a big, global company turned out to be pretty positive. I'm not sure who else I'd go with...
More than anything, I'm amazed and dismayed that tablets are far surpassing the screens they put on laptops these days: http://www.google.com/nexus/10/ - why won't anyone who's not Apple make a decent screen?! They've gotten worse, as my current machine does 1920x1200, and you can't find those anymore.
Agreed. Modern laptop and desktop monitors are shameful regressions in technology. I very strongly believe that a large portion of any real or perceived market weakness of PC manufacturers can be traced to an utter failure to innovate in displays.
You need margin breathing room for a major component cost increase, which most hardware companies don't have. Plus you want to start small, so you can minimize panel area lost to defects. When you have big margins like Apple has on iOS devices, you can afford a small hit ramping up expensive tech high high DPI displays. Prices come down over time and yields go up, so you can make larger (iPad) and larger (retina MBP) high resolution panels taking advantage of your equipment and experience making small panels.
Other companies are catching up (have caught up?), but relatively poor scaling in Windows 7 made it more difficult. Windows 8 still has the same scaling issue for desktop apps.
That market does exist though. I've known quite a few people who have asked me for advice on laptops who were dismayed when I told them the cheapest they could get a laptop was $250. I've also had the same type of people come to me when their $250 laptop dies after 6 months and they "threw away all that money" on some cheap garbage.
A $250 laptop will last you 6 months while a $1000 laptop will last you five years, but there is still the market who finds a better deal in the incredibly shitty computer.
You're inadvertently helping me make my point. You've framed $1000 as a high(er)-end laptop. The cheapest Retina MacBook Pro is $1,700; $1,000 is the cheapest laptop Apple sells. That the entry-level price point to the Apple system is at the high(er) end of mainstream PC laptops was essentially my whole point.
Higher price points let them include higher specs, even on non-obvious pivots like pixel density and overall build quality.
It wasn't inadvertent, it was intentional. I'm agreeing with you that there exists a market that sees $1000 as too much to pay for a laptop, and the $250 market exists. I then went on to disagree with that market based on personal experience. I've also seen some markets who will look at a $1000 Thinkpad and say "if I'm spending that much, I might as well buy a $2000 Macbook".
$1000 is the high end of the Windows laptop line, and gets you just as much as the $2500 Macbook. But you're right, when you hit that price for Windows laptops, people sometimes begin to balk and move to Mac, for one reason or another.
This laptop is something like 3 years old at this point, and I bought it new for around $1200, I think. And it does 1920x1200. So it's not really that only Apple can afford to put this kind of thing on a laptop - I don't buy that.
We don't know what percentage of sales models like yours were of the manufacturer's sales. Was that percentage increasing or decreasing? Was it profitable? There are a lot of factors at play here. If it wasn't selling, they're going to do less of that and more like the sub-$500 ones that are. Perhaps they concluded that the market for $1200 laptops is not worth pursuing.
Also worth noting is that 1920x1200 is less dense than the Retina displays.
It's unlikely - if the Ubuntu activities at Dell turn a profit, Microsoft will have to make a convincing case that not being Windows-exclusive is somehow detrimental to longterm strategy, and that's going to be a tough sell. Dell is one of (the only?) major player with an offering to a new (and very influential) market.
Nokia is different - Microsoft wasn't displacing a successful smartphone business, they bailed out a massive clusterfk. Maemo was promising, sure, but in no way profitable. Basically, Nokia wasn't in a place financially to make a long bet on a new player in the smartphone OS market - Microsoft was.
> Dell has probably been the biggest vendor of Ubuntu machines, mostly in India and other poor countries. For $2 billion Microsoft gets to tell them to kill any such Ubuntu or Android product line-ups, and any research involving them
In my experience, the vast majority of such devices are wiped and loaded with pirated Windows.
There is no good software in India and other countries for Linux. If you want to run business accounting software, you have to run Windows. And there the prices are so high for Windows and there is no enforcement, so they pirate. They do crackdown on things like Autocad for architects and animation software pretty hard though.
Yes, its actually pretty despicable. For a house that my parents were considering buying, the architect showed them the floor plans, which was done in Autocad. I realized this not only because I'm familiar with the way Autocad prints look, but there were, in large letters printed 'FOR TRIAL USE ONLY'
Until they start enforcing copyright protection, quality software alternatives will never get the boost they need.
Post dot come melt down the rules and requirements around financial reporting were substantially strengthened. Some of that was a good thing but in general it was an over reach. C level people now signed their names and risked prosecution. The way revenue was recognized became so conservative as to be nonsensical in many cases. The costs layered on to manage this became significant. In short, it became more and more difficult to innovate if you were a public company due to the costs and potential backlash from public markets.
Facebook is a victim of this on one end. They delayed their IPO as long as they could as Zuckerberg loathed what having to please outside investors would do to the nimbleness he requires. They then waited too long and so are now trying to excite the markets with a company that's already past its most exciting part of the growth curb. Add to that obvious greed and ego in terms of pricing as high as possible and you have a huge web blanket thrown on the ability for other tech companies to IPO.
Dell is on the other end. They decided it was better to invest 6 months of their lives into going private so that they too could innovate for the longer term.
At the end of the day we've gone from the go-go days of the 90's where nearly any tech company would IPO to a point where very few IPO either because they can't or don't want to. That will fundamentally change how companies are funded going forward and will likely impact the amount of returns being generated at the critical (for VC's) end of the funnel. My hope is that public markets realize this and begin to roll back some of the more arduous regulations.
I don't think Dell is going to innovate post-LBO. It's going to be saddled with debt, most of it bank debt. The new owners are going to sell off all activities that don't generate cash and milk the remaining parts until the debt is paid off.
An LBO is basically a gamble that there is a cash cow under all the fat, and once the fat is trimmed investors will see the company's true value.
If there was ever a time when a company was going to be "okay" under massive amounts of debt, it's in today's interest rate climate where companies can borrow money for very little compared to previous eras.
I think that's a fairly cynical response. Dell (Michael) is worth a huge amount. He has a very large stake and isn't doing this to milk his company. Whether he's successful or not is another question but it's certainly no cynical milking exercise. Now he can dig deep, not worry about earnings for the next 12 months, and tackle new opportunities.
The company's stock has been falling because investors think the PC is dying. His taking the company private means he thinks investors are wrong and the stock is undervalued. I never said this is a cynical exercise, but I think his incentive is purely financial.
Except that now, he's probably a minority shareholder (I think he invested $1bn of his own money, and I saw that MSFT invested $2bn) so if they say jump, he has to ask "how high?" All depends on how the deal was structured, though.
Silver Lake, if they're like other private equity firms, are going to want a 20% return in around 5 years. They're going to put pressure on him to sell the unprofitable parts of the firm.
I think there is a huge opportunity for Dell in the private cloud space. They may not innovate on technology, but they could certainly innovate with new business models using emerging technologies like OpenStack.
Dell has plenty of opportunities, given their enterprise customers. The tricky part is: almost all of those opportunities involve new services for post-Microsoft IT. And how is Microsoft and their two billion dollars going to react to those plans?
Cisco has been dabbling in that area with CITEIS, but I don't get the impression it has seen too much traction.
I expect an overwhelming majority of Dell gear that is doing anything along the lines of private, flexible infrastructure is running VMWare who seems to getting ever closer to EMC (whose relationship with Dell is probably thoroughly sour post-Compellent acquisition).
I'd think Dell's best shot a such a move might be to work with Microsoft on a private, Azure-branded stack.
I get the impression that there isn't much behind the stated OpenStack membership/support by the Enterprise names.
But what exactly is good about a large number of IPOs? It will change how companies are funded, but why do you assume things will be worse? It seems to me that a somewhat more thoughtful system of investing might be a good thing.
In some sense, taking a company public is cheating because public markets are easy to manipulate, just look at the Facebook IPO (note, I'm not saying Facebook broke the law, just that they built up hype in a way that would not have been possible in private markets). Facebook didn't actually have to convince any VCs that it could turn a profit. It just had to convince VCs that it could have a successful IPO. There's a subtle, but important difference there.
Hey Glesica. I think you hit the nail on the head with your 2nd last sentence. "It just had to convince VCs that it could have a successful IPO." If VC's think IPO's are less and less realistic as an exit strategy then the other major event will be acquisition exits. That will narrow the funnel of deals they'll be involved in to those that feel like they have a good chance of being acquired. To have a good chance of being acquired you'll need to get onto the radar of one from a handful of companies who have the pockets to do that (Oracle, Facebook, Microsoft - not really Apple as they right now don't do large acquisitions)
I saw your comment on manipulating public markets and see it referenced below in a couple of places too by others. Honestly, Dell pulled his company private because he can't manipulate public markets. It's important to remember that. Zuckerberg and FB have gone from wunderkind to potential "loser" status when moving from private to public markets.
I agree with you that acquisition isn't necessarily any better than IPO as a target. On the other hand, there is a certain amount of money floating around out there and it has to go somewhere. Maybe the total volume of VC money would go down, but I suspect at least a good chunk of it would be re-targeted toward startups with long-term viability of their own.
In terms of the market manipulation, I'm not saying that just anyone can come along and screw with the public markets. Dell can't manipulate the markets because the company is well-understood and operates in a well-understood market. Pretty much by definition startups are not well-understood and most (though certainly not all) operate in poorly-understood markets (or at least operate differently from incumbents in their markets). This means that startups have a better shot at successfully manipulating the public markets, allowing VCs to get paid even if the company itself doesn't pan out.
But is Dell doing this to get away from the financial reporting required of public companies or to get away from the expectations of short-term traders who want growth at all costs?
Why wouldn't you just take the $24 billion and start a new company? Is Dell's goodwill really that valuable, are the supplier relationships that valuable? Or is it because of some legal non-compete reason?
Let's take out the $11.3 billion of cash and short-term investments on Dell's last quarterly balance sheet [1]. Yes, a lot of this being overseas, but that's much less problem for a private company than a public one. So we're really paying $13.1 billion for the assets.
Assets which in 2012 produced a 7.3% un-levered ROA (earnings before interest after taxes / assets) and are levered only 5x (assets / equity) in historically low rates (Lenovo is 6.7x). Not to say this is anything close to a slam dunk. But the pressure of working to make the next interest payment isn't so dissimilar from slaving to your next fund-raise.
Note the difference between capital and money, assets and liabilities, stuff and claims. Companies are arrangements of capital, physical and intellectual. If the value of that arrangement is zero or negative one liquidates, i.e. shuffles the capital around without changing its value while marking down the claims to show the presumed valuable arrangement has vaporised. The inverse of liquidation is entrepreneurship, i.e. shuffling capital into an arrangement of value. When this is successful the claims are marked up to reflect the arrangement's value.
Capital has inertia - shuffling it around takes energy, e.g. recruiting costs for intellectual capital. ABCD -> AB + C + D takes less effort than E + F + G + H -> EFGH. We only liquidate when there is nobody willing to pay for the arrangement. Similarly, we only build when there is nobody selling it.
Thank you for the thorough and understandable answer. I realize my question was naive, but I just didn't anticipate that Dell had such a considerably low price-to-assets ratio (okay, I made this ratio up. I'm obviously not a finance guy). I assumed that at least a big part of the buyout would be a premium on top of the revenue-generating assets, and I was wondering what factors might drive that premium up. Your last point seems to answer that question sufficiently.
Can't the reversed be asked as well? "Why start a brand new company for $24 billion, can't they just buy Dell? Is the culture/supply chain/infrastructure so bad that it has to be scrapped and completely redone?"
I would guess that Michael Dell is betting on the fact it is easier to change the bad parts of Dell, than it is to completely re-build all the good parts.
Dell has total assets of $44.43 billion. This makes Michael Dell's 14% stake worth more than $6 billion. That's what he's putting up. It is hard to see competing with himself as a reasonable course of action - even more so given that he would not be able to put his investment in Dell toward a new venture.
In other words, the $24 billion is there by virtue of the company being Dell and Michael Dell's participation.
As a newly private company – now more firmly under the control of Mr. Dell
Can someone explain what, exactly, has been preventing the CEO and founder of the company from doing what he thinks is best. Is it just the threat of being fired (like Steve Jobs)? By the "board"? Will that threat disappear?
In my experience the difference between being a public company and a private company is all about dealing with stockholders; what you have to disclose and how folks react. A company the size of Dell will deal with at least one and usually several shareholder lawsuits a year if their stock is at all volatile, they will have Sarbanes-Oxley rules they will have to audit for, they have to answer in the news when their stock goes down, they have to explain every quarter what they did and didn't get done in the quarter.
As a private company they can do a much better job of controlling the impression the publish has of them, they are less distracted by shareholder concerns, and they have a small number of shareholders to answer to and be frank with.
For a company that is self sufficient (which is to say doesn't need to go to the public to raise funds for operations or expansion) it is a lot simpler. It has been
stated that this is why Fry's Electronics never will go
public.
The Board prevents that, as well as American corporate law. The American corporation is a series of checks and balances - the Board checks the CEO. Dell is in a unique position because Michael Dell owns so much of the company, 14%. It would have been difficult, next to impossible, to dismiss him from the Board. However, it would not have been as difficult to dismiss him from the title of CEO.
Even private companies have a Board, so the same situation exists today. Likely just new people on the Board, along with Michael Dell.
So actually Dell is going to have much less control of the company than he has now. Shareholders are patsies and CEOs are the guys who effectively control the board. Now that the company goes private he's going to answer to his lenders, and these guys are tough.
(1) Time value of money. Shareholders aren't getting $13.65 today. If DELL traded at $13.65, I could short it and earn a risk-free yield on the short proceeds between now and when the payout is made.
(2) Merger risk. Did I say risk-free? I lied. Deals fall apart for reasons ranging from shareholder litigation to antitrust issues to Michael Dell getting pissed off because his socks got wet. The difference between the forward stock price (stock minus time value) and payout is the expected probability of the deal closing.
Disclaimer: I have an outstanding position in DELL.
I was illustrating, by negation, why a $13.65 buy-out shouldn't immediately lead to the stock rising to $13.65 (because it would produce an arbitrage opportunity).
Note that today the stock did get bid up to $13.48. If the deal takes {90, 180, 270, 360} days to pay out, you would be borrowing from the market at {5.2%, 2.6%, 1.7%, 1.3%}. Add to that the cost of a call (to protect you from a rival bidder or enhanced tender) and subtract the probability of the deal falling through and you have a cost of capital. This isn't risk-free since 13.48 != 13.65, but depending on your time horizon, break-up assumptions, and the asset you're buying with the financing, it could still be an attractive proposition.
To explain the Merger Arbitrage a little more with actual numbers. If you're a Dell shareholder today, you can sell the shares right now at $13.38. This is a $0.27 discount (2.0%) to the agreed upon buy-out price. The shareholders today are willing to give up that 2% in additional gain, because the risk to them is that the sale falls through, and the price of DELL will fall back to the pre-buyout price of around $9.97 (early January price). That would be a 25% loss. Giving up the potential for 2% in gains in exchange for eliminating the risk of 25% loss? A good investment for most average investors.
Why do the institutional investors make this bet - they have advantages that average investors don't. Leverage (they're making this bet with other people's money), options (limited downside risk), or the skeptic may even say, insider information.
The deal is not guaranteed to close. Merger Arbitrage funds help support the price, but most stock holders are happy exiting with the upside they just gained while not risking a few pennies per share on the possibility of the deal not closing.
Wrong again. There's tax implications that prevent him from just surrendering his shares in the company in exchange for a large equity position in a private company.
I do not believe I suggested he would be surrendering his shares, but rather, that he will not be taking a cash disbursement. I believe that he will take a distribution of the OpCo's (thereby stripping the HoldCo's) to be subsumed by the local NewCo, but given the complexity of the deal I wouldn't take too many guesses.
I avoided speculating on the transaction mechanics given that this is Hacker News and not FT Alphaville's Long Room - sorry if that caused confusion.
If JumpCrisscross is wrong, then what does that statement mean in the article that states "Michael S. Dell will contribute his stake [of DELL] of roughly 14 percent toward the transaction.."
No its not quite that he is not getting the cash deal that other investors are so it must be more complex. You are not allowed to favour some shareholders over others.
> No its not quite that he is not getting the cash deal that other investors
It is exactly that. He(Micheal Dell) is not getting the cash deal that other investors are. He is not getting the same deal that other investors are getting. It is that simple.
> You are not allowed to favour some shareholders over others.
No one said they could. He does however have special terms for himself in this deal.
"special terms for himself" is different treatment. As far as I can work out he is taking the buyout as a shareholder and then reinvesting the cash into the buyout deal, but the small print is not public.
There's a lot of big words without substance in these quotes, but the most meaningful part is that Dell's transforming to be a "global IT solutions provider".
So the usual "it worked for IBM" strategy most hardware and infrastructure companies ends up with when sales go south, with mixed results.
That's why this deal came out at a 25% bump over where the share price was when the deal was announced. This bump is intended to entice shareholders to vote for it.
From the shareholders perspective DELL US Equity has been in a downward slide for the past year and only rebounded with this news, so if they don't take the deal then they can probably expect the share price to fall from almost 14 back to under 10 pretty much instantly.
To prevent a very small minority from stopping the will of a large majority once the deal has an overwellimng majority( I think its 95% but I might be wrong on the exact value), they can then force the remainder to take the deal.
This might seem like a bad deal for the hold outs but if this type of provision wasn't' enabled then no company could ever go private as there would always be that one person who holds onto a single share just to be a pain in the ass:)
Squeeze-out legislation has eliminated this problem. With control thresholds at 90% to 95%, as of today it is rare that this "last stakeholder" problem arises, as minority shareholders consent for their share sale is not required.
Having said that, if you look close at the consortium's offer, there is for sure a clause that states that the offer is for x%-100% of the outstanding share capital.
Shareholders aren't being forced: theoretically the board represents the shareholders, and the board voted to accept the deal (and with a 25% premium on price, I would too, if I was on the board). In a sense if you are a shareholder who doesn't like this deal, you should have made that clear to your board members (or voted for different board members who shared your views) before.
I've been following Apple stock lately. To me It seems that stock has almost no relation with the company anymore. It's a game of buy and sell that is dangerous for a company. Apple lost a load of money within hours. I don't think there will ever be a company which is flexible enough to handle changes in value that fast.
So I think this is good for Dell. Breaking free of shareholders who just play the money game.
Not sure what you mean when you refer to a company being flexible enough (or not) to handle fast changes in valuation — I wouldn't imagine there has been any significant change to Apple's operations or strategy during their recent stock price movement.
Well lets say a company is planning a big investment and suddenly stock value dropped like stone. I think that can be very dangerous because suddenly you have to rethink your strategy.
The stock price doesn't effect the company, the company's actions, products and more importantly future prospects influence the stock price.
"To me It seems that stock has almost no relation with the company anymore. It's a game of buy and sell that is dangerous for a company."
Unless the company needs to raise additional capital, which apple does not, the stock price cannot be dangerous for the company.
"Apple lost a load of money within hours. I don't think there will ever be a company which is flexible enough to handle changes in value that fast."
Apple's shareholder's lost money within hours. The company is still profitable.
"So I think this is good for Dell. Breaking free of shareholders who just play the money game."
You may be right, private companies can change management incentives to be longer term rather than stock price based which can allow for high risk, long-term strategies. We won't know for several years until the company goes public again (assuming the deal closes).
Unless the company needs to raise additional capital, which apple does not, the stock price cannot be dangerous for the company.
I don't think this is true anymore. Discussion of executive performance these days starts with stock price (and often ends there.) Executives are encouraged by shareholders and the business media to prioritize short-term stock prices over long-term growth. It can be hard to overcome that bias, especially when executive compensation is usually tied very closely to stock price.
I was extremely careful with my words, notice that I said "company" not "executives" (similar to OP).
It isn't dangerous for executives either but it may influence them to manage earnings or attempt short-term cuts, both activities are usually detected by investors and lead to no price action or lead to negative price action.
If Apple is planning an investment, they really don't need to worry about their own share price. They have over $100 billion and can do what they want. Apple is so far removed from needing its share price to be high that they don't care. I think when it gets too low they buy their own stock thus destroying it and adding more value to the current shareholders.
I think if the shares were higher they might be able to entice future employees perhaps, but they have so much money, they could have even paid Tim Cook billions in cash and it would be rounding error.
If you're planning a big investment and the stock value drops significantly it's probably a sign you shouldn't be making that investment. A company's stock moves based on what investors think the company is going to do. Apple's value has dropped slightly recently because investors aren't aware of any big products in the pipeline.
In 2009, in Davos, Vladimir Putin's response to Michael Dell's question provided a glimpse into the long term challenges faced by Dell and others (IBM, HP, etc).
IBM has sold its PC division to Lenovo, HP flirts on and off with exiting, and Dell has declared itself a services company.
Another insight is the sheer number of desktop computers up for sale on CraigsList and the staggering number of pallets of used equipment up for auction. They're metaphors for the shift/restructuring currently taking place. Those systems aren't necessarily being replaced. Many of them represent desktops used in jobs that no longer exist.
Sorry, I deleted when I was editing the grammer. I think the price is too low relative to the fundamentals of the business. High returns on capital, decent 10/5 year average revenue growth. Decent transitioning taking place. I think it is simply cheap on a FCF basis at 13.65. It appears Dell agrees with me.
I understand the market wasn't pricing it that way in the past few months, but I am not one who believes in efficient markets. My intrinsic value estimate is higher than 13.65, and far higher than the surely oversold Nov price. You are probably correct though, the price premium is probably enough to entice a majority vote. I just feel as though it justifies a higher bid.
> Under the terms of the deal, the buyers' consortium, which also includes Microsoft, will pay $13.65 a share in cash.
So the stock probably won't sell above that number, but won't be far off from it until the deal closes. Since it's a cash deal, after the deal closes you'll probably be compensated with cash (your shares would disappear from your brokerage account and you'd gain the equivalent cash value).
What if I don't want to sell my shares for $13.65 but hang on to them? Can Silver Lake just set a $13.65 value and force me to sell at that value to them?!
Yes, pretty much. The company is going private, and though the board and shareholders have to approve the sale, they can do so without your explicit approval, of course, just a majority (hence the bump in valuation of 25%). So those shares are no good after the deal closes, because the public company you have shares in just ceased to exist as a public company. Your return on investment is the per-share purchase price times the number of shares you hold.
This is the same thing that would happen in an all-stock transaction: let's say you own shares in Ford, and General Motors announces a buyout of Ford. The end-result is that you now own some percentage of GM, since Ford is now part of GM. Poof: your Ford shares convert to some equivalent number of GM shares. Do you cease to own Ford? Well, kind of, since Ford just ceased to exist. So there's nothing to "hold on to" in the sense you're implying.
The deal structure is interesting, with Silver Lake contributing cash, Microsoft a $2 billion loan, and Mr. Dell simply rolling over his stake (though his fund, MSD Capital, will contribute some cash, too). The rest is debt financing from Barclays, Credit Suisse, Bank of America, and Royal Bank of Canada.