long-fought battle with Carl Icahn, one might think Michael Dell would
rest on his laurels and keep Dell Inc. the private, nimble startup he
is promising the world. However, buried in the financing details for
the nearly $25 billion leveraged buyout, backed by Silver Lake, is a
hint that options are being kept open for a return trip to the public
for Dell's $3.25 billion bond offering backing its buyout is kicking
off this week. The offering includes $2 billion of first-lien
seven-year senior notes and $1.25 billion of second-lien eight-year
have three years of call protection, but the second-lien notes have a
clawback that would allow 50% of the notes to be called at par plus
half the coupon in case of an initial public offering.
"It's a little
unusual because they've just gone private," said Richard Farley, a
leveraged finance partner at Paul Hastings LLC.
clawback does for Dell is that it will allow it to pay off some of the
more expensive second-lien debt if it should decide to go public
during the second year following the financing, something that would
be appealing to investors reading the company's S-1 filing.
And 50% is
high for this type of provision. Most equity clawbacks are set between
30% and 40%, another indication that Michael Dell and Silver Lake are
considering the capital structure of the company from all strategic
Co. analyst Jim Kelleher said taking Dell private to sort out its
financial situation was a good strategy but, at a minimum, this
company would need three to five years to even think about going
public again. That said, Kelleher did not remember seeing an IPO
clawback in other buyout situations recently.
recall that same sort of detail in some other takeouts," Kelleher
said. "But this LBO is so large that it's hard to come up with
There is the
example of the take-private of Hertz Global Holdings Inc. in December
2005 for $15.6 billion by a private equity group led by Clayton,
Dubilier & Rice LLC. The buyout consortium took the company public
eleven months later.
difference between the Hertz and Dell situations, however, was that
the car rental chain was doing well when it went public again. Revenue
was up 8%, and Ebitda was up 9% following the buyout.
Dell, on the
other hand, is facing a worldwide secular decline of its signature
product: the personal computer. PC sales suffered their steepest
decline ever in the first quarter of this year, plummeting 14%,
according to a survey from International Data Corp.
dropped 22.6% for the fiscal year ending in February 2013 from 2012,
according to Bloomberg data. The market had priced the company at
under $9 per share in late 2012 before buyout talk began to circulate
and the company ended up being sold for $13.75 per share.
"For them to
go back public so quickly would be an amazing turnaround," Farley
said. "Can these guys really revamp Dell and execute on the business
plan that currently contemplates them being private for an extended
period of time so fast they'd be filing for an IPO within 18 months?
That would be amazing -- I'd say the likelihood of that happening
What to look
for if Dell were planning to go public again quickly are signs that
its credit was doing well so that company would be looking to put
capital to work, Farley said. In that case, paying down the expensive
debt would make sense. "It's a better use of proceeds than a dividend
or a sale of equity," he said.
In a tweet
following the shareholder vote that will allow him to take his
eponymous company private Michael Dell wrote, "Welcome to the world's
as the world knows from the latest crop of tech companies, like
nothing better than to go public. Just look at companies like Google
Inc., Facebook Inc. and the soon to be public Twitter Inc. -- the very
same companies that put the Dells of the world where they are today.
Dell did not
return a call seeking comment on the financing terms.
Group is leading the notes offering. Joint bookrunners include
Barclays plc, Bank of America Merrill Lynch, RBC Capital Markets LLC
and UBS. Dell is also arranging a $5.5 billion loan package to finance
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