Dell, a well-known computer manufacturer, is undergoing a significant change in its ownership structure. The company is being taken private by its founder, Michael Dell, and a private equity firm, Silver Lake Partners.
This shift in ownership is a result of a $24.9 billion deal, which was announced in February 2013. The deal was approved by Dell's shareholders in July of the same year.
The private ownership will give Dell more flexibility to operate without the scrutiny of public markets.
Dell Goes Private
Dell is going private in a deal valued at $24.4 billion.
Michael Dell is taking the lead in buying back the company from public shareholders, with private equity firm Silver Lake joining him.
The deal is priced at $13.65 per share, which is a significant increase from Dell's closing price on January 11th, which was $10.88.
Michael Dell will continue as CEO and Chairman of the company under the terms of the deal.
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A 'go-shop' period has been included in the deal, allowing other offers to be put forward for 45 days.
Competing bidders that don't qualify during the 'go-shop' period will be hit with a $450 million termination fee.
Silver Lake, the private equity firm, has experience taking companies private, having been instrumental in taking Avaya private for $8.2 billion in 2007.
Dive Insight
Dell's decision to go private was a strategic move to focus on long-term growth, rather than meeting quarterly earnings expectations.
Dell's debt load was a major concern for investors, with the company's debt-to-equity ratio reaching 1.43 in 2007, up from 0.85 in 2005.
The private equity firm KKR was a key player in Dell's leveraged buyout, providing a significant portion of the $24.4 billion needed to take the company private.
Michael Dell's ownership stake in the company was diluted significantly after the IPO in 1988, with his ownership dropping from 92% to 22%.
The private ownership structure allowed Dell to cut costs and improve efficiency, with the company reportedly saving $300 million in the first year after going private.
The deal was structured as a leveraged buyout, with Dell's private equity sponsors providing $14.6 billion of the total $24.4 billion purchase price.
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Impact and Consequences
The impact of Dell going private was significant.
Dell's private ownership allowed the company to focus on long-term growth, rather than meeting quarterly earnings expectations.
The company's debt burden decreased, from $24 billion in 2007 to $18 billion in 2013, giving Dell more financial flexibility.
Dell's private ownership also enabled the company to make strategic acquisitions, such as Quest Software and Credent Systems.
The company's revenue growth was steady, with a 10% increase in 2013 compared to the previous year.
Dell's private ownership allowed the company to invest in research and development, with a 25% increase in R&D spending from 2012 to 2013.
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