Michael Dell to take his firm private backed by private equity?
Dell shares rose by 13 percent on Monday as the Wall Street Journal published rumours that the troubled tech firm is planning a management buyout, backed by two private equity firms.
Dell founder Michael Dell, who owns 14 percent of the company, is reported to be in talks with TPG Capital and Silver Lake, to take the firm private in a leveraged buyout that would keep him as CEO. The story emerged on Bloomberg, and has been backed by stories in the Wall Street Journal, Financial Times and Reuters.
Dell’s fortunes have faded, with the company losing a third of its value over the last year. Despite efforts to build its enterprise hardware, storage, software and services, it still makes around half of its revenue in the PC sector where it began in 1984.
Yet its PC shipments fell by 21 percent in the fourth quarter of last year, according to Gartner. This is hurting the company, which has already been hit by the recession and its competitiveness, or lack thereof, in the tablet space.
Michael Dell left the company in 2004, and returned in 2007 when it started flagging, but the five years since then have not seen it return to full health and investors have criticised him for failing to compete adequately in the post-PC world of cloud and tablets.
A management buyout would be unusual in the current recession, as it would require a big investment, in a company so reliant on a declining business sector. Dell was valued at around $21 billion before the rumours emerged and, at that price, a buyout would require around $8 billion in cash and $15 billion in debt, according to sources quoted in the FT and elsewhere.
This would be a lot of money to invest, even if Michael Dell’s share of the company was included in it. The fact that it is being considered indicates that some financial analysts believe the firm has now sunk as low as it is going to get, making it a worthwhile target. However, a buyout on this scale has not happened since before the financial crash began in 2007.
Dell declined to comment on the story.
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