The $24.4 billion deal is meeting shareholder resistance, but Dell officials said all alternatives were explored and this one made the most sense.
Dell executives, seeing growing discontent among some shareholders over their $24.4 billion leveraged buyout plan, said in a regulatory filing Feb. 11 that after a review of all options, taking the world's third-largest PC maker private made the most sense.
The special committee created by Dell's board of directors "considered an array of strategic alternatives," going so far as to hire a "prominent management consultant to help it assess the company's strategic position," Dell officials said in the filing with the Securities and Exchange Commission
"Based on that work, the board concluded that the proposed all-cash transaction is in the best interests of stockholders," the company said. "The transaction offers an attractive and immediate premium for stockholders and shifts the risks facing the business to the buyer group. In addition, and importantly, the go-shop process provides stockholders an opportunity to determine if there are alternatives that are superior to the present offer."
After weeks of speculation, Dell executives announced that they are partnering with private equity firm Silver Lake Partners and Microsoft to take the company private
, a move that will enable founder and CEO Michael Dell to speed up the transformation of his namesake company that he began in 2007 when he returned as the top executive.
The company is in the process of changing over from a PC and server maker to an enterprise IT solutions provider, a move that that included more than a dozen acquisitions in such areas as storage, networking, software and services. The transformation also has come as the worldwide PC market has begun to contract, putting pressure on Dell's financial numbers.
Michael Dell—who would retain control of the company under the buyout plan—and other executives would find it easier to make decisions regarding Dell outside the glare of Wall Street and the pressure of the quarterly financial demands, according to analysts
The deal would pay investors $13.65 a share, a 25 percent premium over the share price last month. Despite the premium, a growing number of shareholders are balking
, saying the price undervalues the company and doesn't give enough back to investors.
The most significant of these investors is Southeastern Management, which said in its own SEC filing
Feb. 8 that they would not support the deal. In a letter to Dell's board of directors, also dated Feb. 8 and included in the SEC document, officials with the investment firm said they felt "extreme disappointment regarding the proposed go-private transaction, which we believe grossly undervalues the company. We also write to inform you that we will not vote in favor of the proposed transaction as currently structured."
The group said they don't oppose the decision to take the company private, only that they were looking for a fair deal for investors. "Unfortunately, the proposed Silver Lake transaction falls significantly short of that, and instead appears to be an effort to acquire Dell at a substantial discount to intrinsic value at the expense of public shareholders," officials said in the letter.