Mergers & Acquisitions
| March 29, 2013, 6:14 pm
What Dell Thought of
Alternatives to the Silver Lake Proposal
MICHAEL J. DE LA MERCED
Kimihiro Hoshino/Agence France-Presse — Getty Images
Michael Dell, the founder of the computer
company that bears his name.
Dell Inc. directors have repeatedly stressed that they considered all
potential ways to improve value for shareholders before accepting a $24.4
billion takeover bid by
Michael S. Dell and Silver Lake.
The company’s voluminous
proxy statement, filed on Friday, shows their concerns about other
alternatives, including a big stock buyback and selling off parts of the
Buried in one of the
filing’s exhibits is a presentation that
JPMorgan Chase bankers delivered to a special committee of Dell’s board
on Jan. 18. In it, the bankers listed potential problems with some of the
alternatives to a full take-private bid by Silver Lake or another
private equity firm.
Some of Dell’s
shareholders, including Southeastern Asset Management and the billionaire
Carl C. Icahn, have called on the company to turn away from the
$13.65-a-share bid by Mr. Dell and Silver Lake. Southeastern has loudly
demanded that existing shareholders be given the chance to stay on as
investors, through what’s known as a stub. And Mr. Icahn has suggested the
possibility of paying out a special dividend to investors.
The two new bids that
arose out of a 45-day “go-shop” process, from both Mr. Icahn and
the Blackstone Group, contemplate leaving some of Dell publicly traded.
Both are essentially variations on a stub, since some of the computer maker
will remain publicly traded.
Of the two most commonly
mentioned possibilities — borrowing money to either buy back lots of stock
or to pay out a special dividend — JPMorgan said that the moves would
seriously limit Dell’s financial flexibility.
Both would severely limit
the company’s cash flow, according to the bankers. And the latter would both
push Dell’s dividend to levels beyond what its rivals pay and signal that
the computer maker has no further places to invest.
The presentation also ran
through the benefits and drawbacks of other possibilities, including a sale
to a strategic buyer (“strategic buyer for the entire business is unlikely”)
and a sale of Dell’s core PC manufacturing arm (“loss of scale and
intersegment synergies” and “potentially diminished free cash flow and debt
Given those arguments, one
wonders what Dell directors will ultimately consider when deliberating the
bids by Blackstone and Mr. Icahn.
The New York Times Company