Bloomberg News

Dell Sets Nov. 5 Deadline to Complete Leveraged Buyout

February 07, 2013

Michael Dell and Silver Lake Management LLC can walk away from their proposed $24.4 billion leveraged buyout of Dell Inc. (DELL:US) if the deal isn’t completed by Nov. 5.

A regulatory document sheds new light on the amounts paid by parties in the buyout agreement, and on its termination rules. Private-equity firm Silver Lake has committed as much as $1.4 billion in equity financing, and Michael Dell is investing $500 million cash in the deal, according to a filing (DELL:US) yesterday with the U.S. Securities and Exchange Commission.

After six months of negotiations, Chief Executive Officer Dell and Silver Lake agreed this week to buy the computer company in the biggest leveraged buyout in technology since 2007. Dell is struggling to keep up with a new generation of competitors in mobile and cloud computing, after years of trying to diversify from personal computers, which make up about half of sales.

Dell has also agreed to use his shares in the company to take back majority control, and Microsoft Corp. (MSFT:US), the world’s largest software maker, made a $2 billion loan as part of the deal. Michael Dell’s investment company is also contributing $250 million in cash.

Under the terms of the agreement, Dell has to pay either $180 million or $450 million to the buyer group if it accepts an offer from another bidder. In certain circumstances, Dell can take the buyers to court to force them to complete the transaction, or force them to pay a $750 million fee instead.

A date for a shareholder vote on the deal hasn’t been set.

‘Good-Faith Shopping’

Michael Dell and Silver Lake are paying $13.65 a share, the companies said Feb. 5 in a statement, 25 percent more than the closing price of $10.88 on Jan. 11, the last trading day before Bloomberg News reported the discussions.

Michael Dell has also agreed that he would “explore in good faith the possibility of working with any third parties regarding alternative acquisition proposals” if the board or its four-member special committee on the buyout requests it, the filing said.

If the U.S. Congress changes the tax law that allows Michael Dell to roll over his stake (DELL:US) in the company without incurring a tax bill, the buyers may be able to back out of the transaction by paying a $250 million termination fee, according to the filing.

Dell has set a 45-day so-called go-shop period in which the special committee and its adviser, Evercore Partners Inc., can solicit other potential offers. A successful counter-suitor would have to pay a termination fee of $180 million during that period, or $450 million after it ends.

Debt Structure

Dell is also seeking $13.8 billion in loans to support the leveraged buyout, according to the filing. Bank of America Corp., Barclays Plc, Credit Suisse Group AG, and Royal Bank of Canada are arranging the financing.

The loans include a $4 billion term B portion, a $1.5 billion C slice, a $2 billion asset-backed piece, and $3.25 billion of bridge facilities, according to the filing. There’s also a $1.9 billion commercial receivables portion and a $1.1 billion revolving consumer receivables facility.

The filing also said that Dell is preparing to sell securities and other liquid assets to contribute a targeted $7.4 billion in cash to the buyout. The maximum amount Dell is obligated to contribute is $8.1 billion, “taking into account the working capital requirements” of Dell’s subsidiaries, the filing said.

Dell shares gained less than 1 percent at $13.53 at the close in New York.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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