Dell Buyout Finally Arrives: Takeunder M&A for Many Holders

Investors will be happy if they bought shares during the weakest part of the past few months. Other than that, this management buyout is effectively a “takeunder” rather than a takeover for many Dell shareholders. Dell does maintain that this represents a premium of 25% over Dell’s closing share price of $10.88 on January 11, 2013, as the last trading day before rumors of a possible going-private transaction were first published. It is also listed as a premium of about 35% over Dell’s enterprise value on the same date. As far as the premium for the longer near-term, this represents a 37% premium over the average closing share price during the previous 90 calendar days prior to January 11, 2013.

The Dell board of directors unanimously approved a merger agreement under which Michael Dell and Silver Lake Partners will acquire Dell and take the company private, subject to a number of conditions. A vote of the unaffiliated stockholders is one condition. Dell’s merger agreement provides for a so-called 45-day “go-shop” period, allowing the Special Committee, along with Evercore Partners, to “actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals.”

The transaction is amazingly not subject to financing conditions. The financing will come through a combination of cash and equity contributed by Mr. Dell’s 14% stake as of now, cash funded by investment funds affiliated with Silver Lake Partners, cash invested by MSD Capital, a $2 billion loan from Microsoft Corp. (NASDAQ: MSFT), rollover of existing debt, as well as debt financing that has been committed by BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets, and cash on hand.

A successful competing bidder who makes a qualifying proposal during the initial go-shop period would bear a $180 million (less than 1%) termination fee. For a competing bidder who did not qualify during the initial go-shop period, the termination fee would be $450 million.

This deal has been in the works for about three weeks now, and it really started last year, if you read into the press release. Dell shares are up less than 1% at $13.39 on the deal and its 52-week trading range is $8.69 to $18.36.