mannerisms

Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.

Rum Deal

Rum old deal this Dell thing.

Usually when bosses take publicly quoted companies private it’s because they can’t stop the share price dropping.

 This could be the case at Dell which has seen its share price drop from $18 this time last year to $10 before news of the buy-out hit.

 If it’s true that Michael Dell wants to make the company into an IBM-style one-stop-shop for big technology installations, and if I was a financial analyst who was told that this was the Dell strategy, then I’d mark the shares down too.

Perhaps Dell was so frightened by his stock tanking that he thought his shareholders might kick him out as Chairman and CEO.

 The other odd thing about this deal is getting private equity involved. Michael Dell is worth $14.6 billion; the company has $15 billion in cash; the buy-out deal values the company at $24 billion; Michael Dell has 16% of the Dell equity.

 So why does he need Silverlake – which is only putting in $1bn of equity money – and Microsoft – which is only putting in $2 billion?

 Answer, perhaps, Silverlake can organise the borrowing of $9 billion to buy out the shareholders, although one suspects Michael Dell could borrow enough short-term to get the deal done before he gets control of the Dell cash.

 Another answer, perhaps, is that Michael Dell doesn’t want to commit his entire fortune to the deal and wants to spread the risk a little.

 Hopefully for the Dell company and its employees, Michael Dell understands the small print.

Tags: fortune, michael dell, Microsoft, money, Private equity

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4 Comments

  1. David Manners
    February 12, 2013 07:13

    Yes indeed Dave, but as soon ss the buy-out deal is done, the cash no longer belongs to the shareholders but the buyer. So the buyer would not have to borrow the buy-out money for very long. Michael Dell doesn’t have to buy himself out so the $24bn buy-out price is reduced to around $20bn, as you say, and he has a net worth of $15bn so could probably raise a short-term loan of $20bn without needing Silverlake’s $1bn or Microsoft’s $2bn.

  2. Dave
    February 12, 2013 07:07

    err ….. Dell would have to find about $20 billion to buy out the other shareholders. That $15b cash is owned by the shareholders – they’re not giving it away for nothing!

  3. David Manners
    February 06, 2013 21:14

    Brilliant, Scunnerous, and spot on

  4. Scunnerous
    February 06, 2013 21:02

    The French have a wonderful expression: ‘Il pète plus haut que son cul’.