Dell’s Buyout Moving Fast: Talks Now at “Advanced Stage”


Things are moving fast at Dell as latest reports suggest that talks about its rumored buyout have already reached an advanced stage, with investors believed to have lined up at least four major banks to provide financing for the deal.

Reuters reports that shares in Dell continued to soar on the back of the rumors, which seem to become stronger by the hour. Yesterday, Dell’s share price rose by 5.2% on the Nasdaq Exchange, building on yesterday’s whopping 13% gain.

More information about the proposed buyout has emerged since yesterday, with Reuters now claiming that Silver Lake Partners is almost certainly the mystery investment firm behind the deal. It’s believed that the private equity firm tapped up banks including Bank of America, RBC, Barclays and Credit Suisse as early as December in order to sound out possible financing, according to Reuter’s unnamed source.

Dell seems to be very interested in making the deal happen, and has been seeking independent advice from JPMorgan over the buyout, which is likely to be valued at somewhere in the region of $22 billion. Meanwhile Silver Lake, who’s involvement in the deal was first mentioned yesterday, is said to be working with an unnamed with one of its limited partners and a major investor, according to Reuters.

The report also mentions that Dell is still keeping its lips sealed tight, refusing to comment on the speculation. Secretly however, Reuter’s source believes that the deal is likely to be confirmed very soon, although he cautions that the situation remains fluid.

In order to make the deal happen, the New York Times claims that CEO Michael Dell is likely to front up a huge slice of the necessary equity investment out of his own personal fortune of $11.3 billion. Dell is keen for the deal to go ahead, as he no longer wishes for the company to be held back by investor concerns as he looks to transform it into a major player on the enterprise stage.

Michael Dell, discussing shareholder value with John and Dave on #theCube.

However, not everyone is convinced that the deal will materialize, with some analysts suggesting that by going private, Dell’s financial muscle power would be severely curtailed. Toni Sacconaghi, an analyst with Bernstein Research, said that a private Dell – which has a long-term debt of some $4.9 bilion – would likely face debt repayments of around $820 per year, something that would limit its ability to make acquisitions.

“With a large debt load, we believe Dell would have a more difficult time acquiring smaller enterprise companies,” said Sacconaghi. “This would make it harder to diversify away from PCs.”

Sacconagi added that he would be surprised if the deal went ahead, telling Reuters that in his opinion the odds of the buyout happening “are probably low” right now.

“We see the rationale for a Dell (leveraged buyout) as being largely opportunistic given low valuation and interest rates, as we don’t see any obvious restructuring opportunities or unique exit strategy,” explains Sacconaghi.