Led by its founder, the buyout will keep it away from Wall Street’s pressure
Slumping personal computer maker Dell is bowing out of the stock market in a $24.4-billion buyout that represents the largest deal of its kind since the global economic crisis dried up the financing for such risky manoeuvres.
The complex agreement announced on Tuesday will allow Dell’s management to attempt a company turnaround away from the glare and financial pressures of Wall Street. Dell stockholders will be paid $13.65 per share to leave the company on its own.
That’s better than $11 level the stock was hovering at before word of the buyout talks trickled out last month, but a steep markdown from the shares’ price of $26 less than five years ago.
Once the sale to a group of investors that includes investment firm Silver Lake is finalised, Dell’s stock will stop trading on the Nasdaq nearly 25 years after the Round Rock, Texas, company raised $30 million in an initial public offering of stock. The company will solicit competing offers for 45 days.
The IPO and Dell’s rapid growth through the 1990s turned its eponymous founder Michael Dell into one of the world’s richest peopleMichael Dell, who owns nearly 16 percent stake in the company, will remain the CEO after the sale closes and will contribute his existing stake in Dell to the new company. Dell’s sale is the highest-priced leveraged buyout of a technology company.
Leveraged buyouts refer to deals that saddle the acquired company with the debt taken on to finance the purchase. Dell’s decision to go private is a reflection of the tough times facing the personal computer industry. By becoming a major Dell backer, Microsoft could gain more influence in the design of the devices running on a radically redesigned version of Windows that was released in late October.
Michael Dell and his financial backers are betting it will be easier to engineer a turnaround without having to pander to the stock market’s fixation on whether the company’s earnings are growing from one quarter to the next.
Taking the company private will leave it without publicly traded shares to entice and reward talented workers or to help buy other companies.
Leveraged buyouts also require companies to earmark some of their incoming cash to reduce the debt taken on as part of the process of going private. The obligations mean Dell will have less money to invest in innovation and expansion of its business.