Question

Focus and observe the events from 2012 – 2013 in Dell’s MBO. What financial and non-financial factors lead to Michael Dell’s MBO victory in Sept. 12, 2013?

Answer 1

Michael Dell has won the battle for control of the computer company that he created, after shareholders backed his $24.8bn offer to take Dell private.

Dell shares fell more than 30 percent over the five years and there was a forecast that that PC sales will be overtaken by tablets.

Net income dropped 72% from a year earlier--but Dell's PC share ticked up one percentage point, its largest move in almost three years. There's a long way to go to rebalance the business. After four years of work and $13 billion in services, software and other acquisitions, the firm still gets more than 60% of revenue from PCs. Dell's market share in services and software stands at less than 1%, but these are the only categories making money and growing. Enterprise solutions, software and services revenue was up 9% in the latest quarter, and services comprised 100% of total operating profit. And in addition to battling traditional rivals like Hewlett-Packard and IBM, the company also has to worry about IT newcomers such as Amazon and Rackspace, which are wooing businesses with cloud-based services.

Michael Dell said that the company needs to go private so it can restructure to cope with the new computing landscape away from the quarterly pressures of Wall Street, and focus as IBM does on providing its storage, servers and services to public organisations and large companies.

Dell was working with private equity partners Silver Lake after seeing off a challenge from activist investor Carl Icahn.

Mr. Dell and Silver Lake will pay — $13.75 a share in cash, along with a special dividend of 13 cents.

After mixing in his 16% ownership, valued at more than $3 billion, and another $750 million in cash, with $19.4 billion from Silver Lake and a consortium of lenders, he now controls a 75% stake in the company.

Others are skeptical that the company can handle the amount of new debt it will assume in going private. Standard & Poor’s cut Dell’s credit rating to junk, citing concerns that the new burden will reduce the computer maker’s ability to invest in its businesses.

Getting to Thursday’s vote was a difficult process filled with tough negotiations. Even before word of the deal began to emerge in late January, advisers to a special committee of Dell’s board had been battling with Mr. Dell and Mr. Durban over how much they would pay for the company, with more than a week spent just on eking out an extra nickel per share from the would-be buyers.

And in the spring, the billionaire Carl C. Icahn and the asset management firm Southeastern Asset Management, criticized the takeover bid as too low and mounted an increasingly bitter fight to derail the deal. Mr. Icahn regularly pilloried Mr. Dell, frustrating both the buyer group and company officials who felt restricted in what they could say.

Dell first proposed the buyout in private discussions in June 2012. It was announced on 5 February at $13.65 per share. Rival bidder Blackstone raised that to $14.25 in March, and Icahn offered $15 soon afterwards. Dell finally offered $13.75 per share.

A vote on the buyout had been postponed three times as Michael Dell and the company's board scrambled to garner enough votes in favour. But last month Dell raised his offer price, tacked on a special-dividend sweetener, and got the board to change voting rules so that abstentions no longer count against him – turning the tide in his favour.

A change of over two months in the deadline for proxy votes may also have brought backing from hedge funds that bought shares for short-term gain and were likely to support a buyout.

Mr. Icahn’s campaign ended last month, when a Delaware court rejected a last-minute effort by Mr. Icahn to overturn changes to Dell’s voting rules that eased the path to a victory for the buyers.