Bloomberg News

Dell Said to Work With AlixPartners on Post-LBO Turnaround

September 24, 2013

Dell Inc. (DELL:US), the computer maker that founder Michael Dell and Silver Lake Management LLC are taking private for $24.9 billion, is working with AlixPartners LLP on its turnaround, according to people with knowledge of the matter.

AlixPartners, which advised General Motors Co. on its restructuring when the automotive giant filed for Chapter 11 bankruptcy protection in 2009, is counseling Dell on organizational restructuring and cost cuts, said one of the people, who asked not to be identified because the information isn’t public.

The move highlights how the Round Rock, Texas-based personal-computer maker is working to reshape itself after shareholders on Sept. 12 approved the go-private deal. Chief Executive Officer Dell, 48, faces a tough road ahead -- including job cuts and other actions -- as he takes the company out of public hands to transform it into a leaner provider of data-center gear and corporate software.

The leveraged buyout itself was mired in months of wrangling, with opponents including billionaire activist Carl Icahn arguing that the deal undervalued Dell. The shareholder vote was postponed three times, and didn’t pass until Dell and Silver Lake twice sweetened the price, ultimately boosting it to $13.88 a share from $13.65 a share.

The go-private deal is scheduled to close by Nov. 1, the end of Dell’s fiscal third quarter. It needs regulatory approval in China and Brazil, where the company generates significant revenue.

David Frink, a spokesman for Dell, declined to comment, as did Gordon Goldstein, a spokesman for Silver Lake. Tim Yost, a spokesman for AlixPartners, also declined to comment.

Debt Payments

Once the deal closes, Dell will have a debt (DELL:US) load of about $18 billion, including a $2 billion loan provided by Microsoft Corp. (MSFT:US), up from $6.8 billion in debt before the LBO, according to data compiled by Bloomberg.

Dell will take at least three years to repay its debt, assuming it continues to generate cash flow of $2 billion to $3 billion a year, said a person familiar with the company’s financial situation.

The turnaround will have to include cuts of Dell’s workforce of 108,800, to make up for the lack of cost efficiencies after acquisitions in the past five years, said the person. Dell has bought companies including computer-services company Perot Systems Corp., data-storage company Compellent Technologies Inc. and software maker SecureWorks Inc.

AlixPartners is aiming to advise Dell on fully capturing the benefits the acquisitions should have generated, said another person with knowledge of the matter. The person said AlixPartners also plans to help realign Dell with the company’s new strategy focused on enterprise software and services.

Management Challenges

CEO Dell founded the PC maker in 1984 in his college dormitory. In recent quarters, the company has missed earnings estimates as the PC market has declined. Dell’s sales this year are expected to fall to about $57.3 billion, according to the average estimate (DELL:US) of analysts surveyed by Bloomberg, from $62.1 billion two years ago.

Private-equity firms typically replace the management of the companies they take private. Since Silver Lake sponsored Dell’s buyout, it is stuck with the CEO, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business and Michigan Law School.

“Michael founded the company and grew it but has no turnaround expertise,” Gordon said in a phone interview. “They hired an adviser because a turnaround is very different from growing a company.”

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net; Jeffrey McCracken at jmccracken3@bloomberg.net


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