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Monday, 01 April 2013 11:44

Dell stuffed if it doesn’t go private

Written by Nick Farrell



We would need to get a loan

Hardware outfit Dell would have to go cap in hand to the bank and take on a lot of debt if it wanted to stay a public company, its board has warned.

In a proxy statement to shareholders the Dell board said it would be dangerous to take on a lot of debt and remain a public company given that its profits were headed down the loo. This is the first sign that it does not like proposals from Blackstone and billionaire investor Carl Icahn.

In a 274-page preliminary proxy statement about a $24.4 billion buyout proposal from founder and Chief Executive Michael Dell and private equity outfit Silver Lake Partners it seemed to suggest that it was the best of all the alternatives. Icahn wanted to pay $15 per share for 58 per cent of Dell, while Blackstone has indicated it can pay more than $14.25 per share. But both deals involve saddling the company with a lot of debt and keeping it public. Silver Lake's $13.65 per share all-cash offer would see Dell go private.

While Dell's statement did not say that the Blackstone and Icahn bids were pants, it warned that any leveraged recapitalization was risky, particularly if Dell was going to remain a public company. If the moves went ahead employee, customer and supplier confidence in the company's long-term prospects would dry up and limit the company's ability to aggressively implement its long-term business strategy.

The statement was based on scenarios examined by Boston Consulting Group, which carried out an independent analysis for Dell. It seems to think that revenues will slip every year to 2016. Dell's board expects fiscal 2014 operating income of $3 billion, down from last summer's internal forecast of as much as $5.6 billion, the proxy shows.

Michael Dell's and Silver Lake's post-buyout plan included adding a significant number of sales personnel and boosting spending on research and development. However it will not buy any new companies or assets. If the restructuring plan was carried out with Dell as a public company, would not be palatable to shareholders and the stock could suffer, Dell said.

According to Reuters, Michael Dell is also worried that Blackstone's offer would dismantle outfit. It will also be inconsistent with his strategy to reinvest in the company. In short Blackstone will asset strip the company. One thing that Blackstone has not managed to obtain is Oracle President Mark Hurd. Hurd was tipped to run Dell if it takes over the company. However it looks like he was washing his hair.

Nick Farrell

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