Dell buyout to take firm private

Associated Press file photo -- Dell Inc., which has an office in Santa Clara, Calif., is going private in a $24.4 billion buyout led by founder Michael Dell.
Associated Press file photo -- Dell Inc., which has an office in Santa Clara, Calif., is going private in a $24.4 billion buyout led by founder Michael Dell.

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 Great Recession dried up the financing for such risky maneuvers.

The complex agreement announced Tuesday will allow Dell Inc.’s management, including founder Michael Dell, 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 25 percent more than the stock’s price of $10.88 before word of the buyout talks trickled out three weeks ago. But it’s a steep markdown from the shares’ price of $24 six years ago when Michael Dell returned for a second go-round as CEO.

Dell shares rose 15 cents to close at $13.42, indicating that investors don’t believe a better offer is likely.

The chances of a successful counter offer look slim, given the forces lined up behind the deal.

Michael Dell, the company’s largest shareholder, is throwing in his 14 percent stake and an undisclosed sliver of his $16 billion fortune to help finance the sale to a group led by the investment firm Silver Lake.

Dell’s decision to go private is a reflection of the tough times facing the personal computer industry as more technology spending flows toward smartphones and tablet computers. PC sales fell 3.5 percent last year, according to the research group Gartner Inc., the first annual decline in more than a decade. What’s more, tablet computers are expected to outsell laptops this year.

The shift has weakened longtime stalwarts such as Dell, fellow PC maker Hewlett-Packard Co., chip maker Intel Corp. and Microsoft Corp.

“We recognize that (transformation) will still take more time, investment and patience, and I believe our efforts will be better supported by partnering with Silver Lake in our shared vision,” Michael Dell said in a statement.

Software maker Microsoft, which counts Dell among its biggest customers, is backing the deal by lending $2 billion to the buyers. The remaining money to pay for the acquisition is being borrowed through loans arranged by several banks, saddling Dell with an estimated $15 billion in debt that could raise doubts about its financial stability among its risk-averse corporate customers.

The sale is structured as a leveraged buyout, which requires the acquired company to repay the debt taken on to finance the deal.

Dell’s sale is the second-highest-priced leveraged buyout of a technology company, trailing the $27 billion paid for First Data Corp. in 2007.

The deal is the largest leveraged buyout of any type since November 2007 when Alltel Corp. sold for $25 billion to TPG Capital and a Goldman Sachs subsidiary. Within a few months, the U.S. economy had collapsed into the worst recession since World War II.

Michael Dell, 47, is betting that his company will be able to evolve into a more diversified seller of technology services, business software and high-end computers without having to pander to the stock market’s fixation on whether earnings are growing from one quarter to the next. Dell expects to complete the sale by the end of July.

Once the deal closes, Dell’s stock will stop trading on the Nasdaq Stock Market 25 years after the Round Rock, Texas, company raised $30 million in an initial public offering.

The proposed deal could face resistance from longtime stockholders who believe Dell is still worth at least $15 per share. Anticipating such criticism, Dell’s board is allowing 45 days for potential suitors to submit higher bids.

Dell’s board “is saying that no better option exists,” said Bill Nygren, manager of the Oakmark Fund and affiliates, which own about 25 million shares of Dell stock. “Should we hear evidence to the contrary, we’ll raise a ruckus.”

If approved, the deal will likely give Michael Dell his last chance to restore the luster to a company that established him as one of the world’s most respected entrepreneurs. Dell started selling PCs out of his dorm room while he was a freshman at the University of Texas. In the past decade HP and other rivals have outmaneuvered his company and Dell has struggled to cope with the popularity of smartphones and tablet computers.

The buyout marks a new era for a company created in 1984 by a college kid with a $1,000 investment. The company, initially called “PCs Limited,” would go on to revolutionize the PC industry by taking orders for custom-made machines at a reasonable price — first on the phone, then on the Internet.

Initially valued at $85 million in its 1988 initial public offering, Dell went on a growth tear that turned the company into a stock market star. At the height of the dot-com boom in 2000, Dell was the world’s largest PC maker, with a market value of more than $100 billion.

But Dell began to falter as other PC makers were able to lower their costs.

AP business writer Michelle Chapman and AP technology writer Peter Svensson in New York contributed to this story.