Mergers & Acquisitions
| March 29, 2013, 4:20 pm
Michael Dell’s Takeover Bid Got Hatched
MICHAEL J. DE LA MERCED
Shareholders may still be
irate over the $13.65 a share that
Michael S. Dell has bid for the company that bears his name.
But according to the
company’s proxy filing on Friday, the price has come a long way from what
Dell‘s partner, Silver Lake, first offered.
Here’s a chronology of
Silver Lake’s bidding history, stretching well back to the early days of
Dell’s deliberations about whether to go private.
They’re set against what
the proxy describes as a series of missed financial projections and
increasingly dire assessments by the Boston Consulting Group, which the
committee had retained as an additional adviser.
Southeastern Asset Management, Dell’s biggest outside investor with what is
now an 8.4 percent stake, reaches out to Mr. Dell with a novel idea: taking
the company private. Southeastern had expressed interest in staying invested
in the computer maker in any leveraged buyout and furnished Mr. Dell with a
spreadsheet and other information.
July 17 to Aug.
14: Mr. Dell first meets with Silver Lake at an industry conference
and begins discussing the idea of taking the company private. Mr. Dell also
has conversations with an unnamed
private equity firm, dubbed “Sponsor A” in the proxy filing, about a
leveraged buyout. (That firm was
Kohlberg Kravis Roberts, according to people briefed on the matter.)
DealBook noted that Mr. Dell had had discussions with top executives at
both firms — Egon Durban of Silver Lake and George R. Roberts of K.K.R. — in
Hawaii, where all three men have residences.
On Aug. 14, Mr. Dell
formally notified Alex Mandl, the company’s lead independent director, that
he was interested in taking the computer maker private. Six days later, the
board formed a special committee, with Mr. Mandl as its head.
Months of deliberations
within the Dell special committee began, as Silver Lake and K.K.R. began
conducting due diligence.
Both Silver Lake and K.K.R. submitted preliminary offers for the computer
company. Silver Lake offered to pay $11.22 a share to $12.16 a share
for all of Dell. Its bid envisioned Mr. Dell contributing his 16 percent
stake in the company to the deal.
K.K.R. contemplated paying
$12 a share to $13 a share. The firm assumed that both Mr.
Dell and Southeastern Asset Management, Dell’s biggest outside investor with
a roughly 8.4 percent stake, would join the offer. Mr. Dell was also
expected to kick in an additional $500 million.
JPMorgan Chase, on behalf of a special committee of Dell’s board,
contacted both Silver Lake and K.K.R. about initial feedback on their
Nov. 16 and Nov.
17: Mr. Dell and other top Dell executives met with Silver Lake and
K.K.R. to discuss potential revised bids. The company founder told both
firms “that they should assume that he would be prepared to participate at
the highest price they were willing to pay,” according to the filing.
Dec. 3: A
Goldman Sachs analyst published a research note musing on the
possibility of Dell going private, sending the company’s shares up to $10.06
a share. Later that day, K.K.R. dropped out of the sale process.
K.K.R. elaborated, saying that its investment committee “was not able to get
comfortable with the risks to the company associated with the uncertain PC
market, and the concerns of industry analysts regarding the competitive
pressures the company faced.”
Also that day, Silver Lake
raised its bid to $12.70 a share and stripped away
unspecified conditions from its earlier proposal.
During a meeting of the special committee, JPMorgan bankers said that they
considered Silver Lake and K.K.R. the most likely private equity bidders for
Dell. A third investment firm, “Sponsor B” — which people briefed on the
matter confirmed was TPG Capital — was the next most likely to make “a
Mr. Mandl of the Dell special committee reached out to TPG to invite it to
consider making a bid. The private equity firm agreed, and two days later
began looking at the company’s books.
Mr. Mandl told Silver Lake that its bid of $12.70 was too low and would need
to be raised much higher. At that meeting, the investment firm asked for
permission to approach
Microsoft about providing financing, as well as other potential lenders.
The special committee
granted permission for that outreach the next day.
Dec. 14 to Dec.
16: Dell signed confidentiality agreements with a number of
potential lenders to Silver Lake. The banks were the
Royal Bank of Canada,
Bank of America
Silver Lake subsequently
asked for financing proposals by Jan. 3.
TPG asked JPMorgan bankers for permission to submit its preliminary offer
within the next few days.
TPG dropped out from the bidding process, citing “concerns
about the negative trends in gross margin and earnings in the PC business
and the decline in the company’s operating performance, including the
decline in its operating margins.”
Silver Lake revised its bid, now fully financed by its four banks, to
$12.90 a share. The proposal also included a $2 billion
loan from Microsoft.
Mr. Mandl, of the Dell special committee, told Mr. Dell that he was
pessimistic that a deal could be reached, and asked for suggestions about
how to improve the company while keeping it a publicly traded concern.
Mr. Dell reiterated that
he believed taking the company private was its best course of action.
Mr. Mandl told Mr. Dell that the special committee would accept an offer of
$13.75 a share$13.25 a share.
Mr. Mandl told Silver
Lake’s Egon Durban that his suggestion was “not intended to be the start of
a price negotiation” — to which Mr. Durban said that the firm would go no
higher and would have to walk away.
Later that day, JPMorgan
began talking with Silver Lake about raising its bid.
Silver Lake floated another revised bid, worth $13.50 a share.
But JPMorgan said that likely wouldn’t pass muster.
Silver Lake began discussing with Mr. Dell the possibility of his rolling
over his shares in a deal below the price offered to other shareholders. The
company founder said he was willing to value his shares at $13.36 a share to
prod Silver Lake into offering $13.60 a share.
Silver Lake told JPMorgan that it was prepared to offer $13.60 a
share as its “best and final offer.”
Later that day, bankers at
Evercore Partners, another adviser to the Dell special committee,
received a number of unsolicited proposals. One came from an unnamed
strategic bidder — which people briefed on the matter said was
GE Capital — offering to buy Dell’s financial services arm for book
value, or about $3.5 billion to $4 billion.
the Blackstone Group said it was interested in participating in any
“go-shop” process aimed at flushing out alternatives to any bid from Mr.
Dell and Silver Lake.
Advisers to Dell’s special committee met with Southeastern and its outside
lawyers. During the meeting the asset management firm said that it would
oppose any deal in the range of $14 a share to $15 a share that didn’t give
existing big investors, such as itself, the chance to roll over their stakes
as part of a deal.
Informed of Southeastern’s
demands later that day, Mr. Dell and Silver Lake said that they weren’t
interested in any deal that would let public investors keep a stake in the
Silver Lake offers to revise its bid in one of two ways. Either it would pay
$13.60 a share and let Dell continue to pay its quarterly dividends
until the deal closed, or $13.75 a share if Dell halted its
The special committee
reiterated that it wouldn’t accept a price of $13.60 a share.
Silver Lake contacted the special committee to say that it would be willing
to pay $13.65 a share while allowing dividends to continue being
Following a series of
meetings, Dell’s special committee ultimately recommended that the full
board accept the $13.65-a-share bid.
A little after 11 p.m.,
the Dell board voted to accept Silver Lake’s final bid. Lawyers for the two
sides worked through the night to finalize the necessary legal documents.
Dell and the buyers signed contracts and formally announced the deal.
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