The Star Online: Business
The Star Online: Business |
- Dell warns of risks of remaining a public company
- Timeline: The long path to a Dell buyout
- Investors wary of "slow panic" on growth after Cyprus rescue
| Dell warns of risks of remaining a public company Posted: 29 Mar 2013 08:49 PM PDT NEW YORK/SAN FRANCISCO: Dell Inc warned on Friday that it would be dangerous to take on a lot of debt and remain a public company given its worsening profit outlook, in a sign that it views proposals from Blackstone Group LP and billionaire investor Carl Icahn as fraught with risk. The No. 3 maker of personal computers published a 274-page preliminary proxy statement to inform Dell shareholders of how a $24.4 billion buyout proposal from founder and Chief Executive Michael Dell and private equity firm Silver Lake Partners was put together, and why it is the best of all the alternatives the company's board had explored. Icahn has proposed paying $15 per share for 58 percent of Dell, while Blackstone has indicated it can pay more than $14.25 per share -- both deals involve saddling the company with a lot of debt and keeping it on public markets. Silver Lake's $13.65 per share all-cash offer would see Dell go private. Dell's proxy statement did not directly pass judgment on the Blackstone and Icahn bids, yet it warned that any leveraged recapitalization was risky if the company was to remain public. "Even when taking into account the certain value distributed to stockholders, (a leveraged recapitalization) would be unlikely to result in an aggregate value exceeding the $13.65 per share merger consideration and would present a number of risks and challenges," Dell said in the statement, referring to its special committee's review. Such a move would decrease employee, customer and supplier confidence in the company's long-term prospects and potentially limit the company's ability to aggressively implement its long-term business strategy, Dell added. Under all scenarios examined by Boston Consulting Group, which carried out an independent analysis for Dell, revenues are seen slipping 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. LONG NEGOTIATIONS Dell painted an account of arduous negotiations. It set up a special committee to evaluate all the company's options aiming to placate concerns over potential conflicts of interest facing Michael Dell. The CEO owns 15.7 percent of the company he started in 1984 out of his college dorm room with $1,000. Under his take-private deal, Michael Dell and his investment firm would own 75.9 percent of the company, with Silver Lake owning the rest. Dell said Michael Dell's and Silver Lake's post-buyout plan anticipated adding a significant number of sales personnel and boosting spending on research and development. There are no plans to embark on major assets sales following the buyout, it added, The restructuring plan envisioned, were it to be carried out with Dell as a public company, would not be palatable to shareholders and the stock could suffer, Dell said. Dell also said a strategic party, whose identity it did not disclose, expressed interest on January 24 to acquire its financial services business for its book value, estimated at between $3.5 billion and $4.5 billion, excluding debt. A standalone deal of this kind would not benefit the company, Dell concluded. BLACKSTONE MEETINGS Michael Dell met with Blackstone and its buyout partner Francisco Partners on March 7 and 8 during a 45-day, so-called "go-shop" period when other bidders are invited to make offers, the proxy said, indicating that Blackstone explored early on the possibility of keeping Michael Dell as CEO. Michael Dell also met earlier this week with Blackstone's senior managing directors Dave Johnson and Chinh Chu, although the outcome of those discussions has yet to become clear, a person familiar with the matter said on Friday. Michael Dell has expressed concern that Blackstone's offer would dismantle the PC maker he founded in 1984, two people close to Michael Dell have told Reuters. The founder is worried that the buyout firm's plans would be inconsistent with his strategy to reinvest in the company, they added. Blackstone has already made an unsuccessful push to recruit Oracle Corp President Mark Hurd to run Dell if it takes over the company, one source familiar with the situation said last week. Dell revealed that its special committee, chaired by businessman Alex Mandl and set up to assess all possible strategic alternatives for the company, also comprises of board members Laura Conigliaro, Janet Clark and Kenneth Duberstein. The proxy statement shows how Silver Lake raised its bid six times by about $4 billion, or over 20 percent, during the course of the negotiations. The final agreed price of $13.65 per share in cash is below where Dell shares ended trading on Thursday at $14.33. Before approving the deal and announcing it on February 5, Dell spent more than five months evaluating alternatives that included a leveraged recapitalization and selling all or part of the business. Dell was regarded as a model of innovation as recently as the early 2000s, pioneering online ordering of custom-configured PCs and working closely with Asian component suppliers and manufacturers to assure rock-bottom production costs. But as of 2012's fourth quarter, Dell's share of the global PC market had slipped to just above 10 percent from 12.5 percent a year earlier, according to research house IDC. The proxy statement shows how the special committee wrested with the notion of staying public as the company's financial fundamentals weakened. Dell's detailed regulatory filing also showed how Microsoft Corp's Windows operating system - which once had a chokehold over the whole PC market, is being undermined by other software. Dell said it is seeing uncertain adoption of Microsoft's new Windows 8 operating system, which was launched with much fanfare last year, and an unexpected slowdown in Windows 7 upgrades by businesses. - Reuters |
| Timeline: The long path to a Dell buyout Posted: 29 Mar 2013 08:46 PM PDT SAN FRANCISCO/NEW YORK: Dell Inc founder Michael Dell's efforts to take the PC company private began last summer with an idea pitched by its top institutional shareholder, Southeastern Asset Management. Here is a timeline of the discussions as disclosed on Friday in Dell's preliminary proxy statement: June 15, 2012 -- Southeastern Asset Management, which owns 146.5 million shares or about 8.4 percent of Dell, contacts CEO Michael Dell to suggest "a going private transaction" and expresses the fund's interest in participating in it. July 17 -- Michael Dell meets a representative of private equity firm Silver Lake Partners at a conference and they set up discussions in August. In these talks, Silver Lake suggests to Dell's founder he should take the company private. August 11, 13 -- Michael Dell meets with a representative of another private equity firm, identified in the proxy only as "Sponsor A," to ask what it thought of such a transaction. Sources told Reuters Sponsor A is private equity firm KKR & Co LP. KKR declined to comment. August 14 -- Michael Dell informs board member and lead independent director Alex Mandl that he is exploring a buyout but says he has made no decision. August 17 -- The board has a teleconference during which Michael Dell briefs them on the take-private idea and discussions surrounding it. The board decides to consider a potential transaction and other strategic alternatives. August 20 -- The board forms a special committee consisting of Mandl, former co-director of Goldman Sachs' Americas equity research unit Laura Conigliaro, Marathon Oil Chief Financial Officer Janet Clark and consulting firm Duberstein Group CEO Kenneth Duberstein. Mandl is subsequently appointed chairman of the special committee. August 21 -- Dell reports weak second fiscal quarter results. Revenue of $14.5 billion was about $300 million less than what management had expected. The company lowers fiscal 2013 outlook. August 24 to 29 -- Mandl holds discussions with investment bankers JPMorgan Chase & Co and Goldman Sachs Group Inc to select a financial advisor. JPMorgan is retained. September 14 -- JPMorgan tells the special committee it has identified other financial sponsors as potential buyers but notes that Silver Lake and KKR are best placed as each could complete a transaction with significant committed equity. October 23 -- Silver Lake and KKR submit preliminary proposals to acquire Dell. Silver Lake's purchase price is between $11.22 and $12.16 per share, and KKR's purchase price is between $12 and $13 per share. Both assume Michael Dell would participate in the deal. KKR also assumes Southeastern would participate. October 27 - The special committee discusses with Dell Chief Financial Officer Brian Gladden potential strategic alternatives such as returning capital to shareholders through a leveraged recapitalization, accelerating the company's current plan, a transformative acquisition and separating certain businesses. November 2 -- JPMorgan informs Silver Lake and KKR the special committee is not happy with the price ranges. November 12 -- Dell hires Boston Consulting Group to review strategic alternatives. Dec 3 -- KKR withdraws from the process, mainly because it is not comfortable with the risks associated with Dell. December 4 -- Silver Lake submits an updated proposal to acquire Dell for $12.70 per share. December 7 -- Mandl invites another firm, identified in the proxy only as "Sponsor B," to consider making a proposal. A source told Reuters Sponsor B is private equity firm TPG Capital LP. TPG did not respond to a request for comment. December 10 -- Mandl informs Silver Lake its offer price is too low. Silver Lake seeks permission to involve Microsoft Corp, from which it intended to seek financing. December 14-16 -- The company enters into confidentiality agreements with debt financing sources of Silver Lake: RBC Capital Markets, Credit Suisse Securities, Barclays Capital, and Bank of America Merrill Lynch. December 17 -- Michael Dell meets with senior representatives of TPG to discuss a potential proposal. December 23 -- TPG informs it is withdrawing from the process, primarily due to "risks and uncertainties in the PC business." January 16, 2013 -- Silver Lake submits another proposal to acquire Dell for $12.90 per share. January 19 -- Mandl tells Michael Dell the special committee is willing to support a transaction at a price of $13.75 per share. Michael Dell then discusses it with Silver Lake, which later proposes a price of $13.25 per share. January 20 -- Silver Lake informs Dell it is willing to increase its offer price to $13.50 per share. January 24 -- Silver Lake increases its offer to $13.60 per share. January 24 -- A party identified as "Strategic Party A" expresses interest in purchasing Dell's financial business for about $3.5 billion to $4 billion. Blackstone Group LP also expresses interest in exploring a transaction. It could not be confirmed whether Strategic Party A IS General Electric Co, which sources previously said had been approached by Blackstone. GE has previously declined comment. January 29 -- Southeastern informs special committee it would oppose any deal in the range of $14 or $15 per share that did not provide existing large stockholders with an opportunity to participate. Michael Dell and Silver Lake say they are not interested in pursuing a deal in which any public stockholders would retain an interest. February 3 -- Silver Lake submits a revised proposal, offering $13.60 per share if the company continues paying its regular dividend, or $13.75 per share if the company stops paying dividends. February 4 -- Silver Lake ups its offer to $13.65 per share, with the Dell allowed to carry on paying its regular dividend. Special committee recommends accepting Silver Lake's proposal. February 5 -- A deal with Silver Lake is announced and a 45-day period starts to uncover other offers. Dell contacts 67 parties, including 19 strategic parties, 18 financial sponsors and 30 others such as sovereign wealth funds. Unsolicited inquiries are also received from four parties, including two strategic and two financial sponsors. March 5 -- Activist investor Carl Icahn sends a letter to Dell's board stating he is a substantial holder of shares. Icahn later reveals he has $1 billion worth of Dell shares. March 21 -- Dell advisor Evercore receives an indication of interest from Strategic Party A for a proposed acquisition of Dell's finance business. March 22 -- Blackstone and Icahn Enterprises send proposals to the special committee. Blackstone, which teamed up with Francisco and Insight Venture partners, offers in excess of $14.25 per share for the whole company, while Icahn offers about $15 per share for 58 percent. Under both proposals, Dell would remain a public company. March 25 -- Dell releases 274-page preliminary proxy statement on its buyout negotiations. Sources: Dell's proxy statement, Reuters |
| Investors wary of "slow panic" on growth after Cyprus rescue Posted: 29 Mar 2013 08:44 PM PDT LONDON: World markets have reacted calmly to the twists and turns of Cyprus's financial rescue in the last fortnight but many investors fear the economic fallout is yet to come. They have sold European assets, rather than make a global dash for safety that could signal concerns about a euro breakup. Euro blue chip and bank equity prices, regional bank bonds and the euro exchange rate have all fallen sharply this week but Wall St stocks set a record closing high. Mutual fund data released by fund tracker EPFR on Friday showed that European equity, bond and money market funds all saw hefty redemptions this week even as investors continued to pile into Japanese and U.S. equity funds. Cyprus's 10 billion euro rescue averted an immediate financial meltdown that could have caused a Lehman Brothers-style shock in financial markets. But it came with a forced shut down of the island's second largest bank and a raid on bank deposits of over 100,000 euros, that forced big depositors to become part of the rescue. Global investors are worried that the precedents set in the messy rescue will strain bank funding, hurting businesses and the fragile regional economy and delaying any recovery. Ben Bennett, strategist at British fund managers Legal and General Asset Management described the scenario of depositor fear, bank solvency and recession as a "slow panic". "I don't think there's anyone who's woken up in a cold sweat at midnight wondering what assets they need to dump - this is much more of a slow grind," said Ben Bennett, strategist at British fund managers Legal & General Asset Management. Investors are worried that the precedents set for resolving a bank's problems has pushed up the cost of lenders' funding. If banks have to pay more to borrow they will be reluctant to lend to businesses, already grappling with a recession and difficult credit conditions. This would hurt growth and questions about the ability of the bloc to shake off its debt spiral and the viability of Europe's single currency would resurface. Forcing savers to take a hits also sets a precedent that may mean depositors in other countries withdraw money more quickly in the future if they hear of troubles in the banking system. DEPOSIT RADARS While the principle of bail-ins for senior creditors may have been flagged for some time the impact of the depositor exposure is a wild card. Investors are looking for any sign that savers elsewhere in Europe withdrew deposits from banks fearing they might end up losing money like the depositors in Cyprus. But it will be at least another four weeks before Europe's central banks release data on depositor behavior post-Cyprus for March and a fuller picture will take another month. Until there is clear evidence, investors will be nervous, being led by anecdotal evidence and market pricing. Euro bank stocks have lost more than 10 percent since mid-March to their lowest since September and default insurance costs on senior European bank bonds have jumped about 50 basis points over the same period to six-month highs. While these price moves are relatively contained, the impact on growth of the higher costs bank will pay to fund themselves appears to be a much bigger worry for many investors. The world's biggest bond fund manager PIMCO said last week it was cutting exposure to the euro currency and its chief executive Mohamed El-Erian told German tabloid Bild on Thursday that after three years of euro crises, recession on the periphery was hurting the core and "the costs are rising." John Stopford, co-head of fixed income and currency at Investec Asset Management, said the confidence bought by the European Central Bank's promise last summer to do what was necessary to save the euro hinged on growth returning and policy finding a coherent tack. The events in Cyprus raised questions about both, he said. "I'm increasingly pessimistic," said Stopford. "It does seem to me the goalposts are being moved quite a lot at the moment and there's a danger (investor) trust will go again if they're not careful." "There's a slow credit crunch going on where banks are having to strengthen balance sheets and events in Cyprus can only exacerbate that." FEWER LOANS HURT GROWTH Any problems in the banks would make things worse for the small and medium size firms that are crucial to economic growth and are already struggling to find lenders. "The lack of funding to SMEs is clearly at the heart of the ECB's thinking at the current juncture, as a blatant and persistent sign that policy transmission remains significantly impaired," a Deutsche Bank report said this month. The existing credit drought and ongoing fiscal austerity on business confidence has already been clear in regional Purchasing Managers Surveys that disappointed expectations again through February and March. And beyond the surveys, positive euro zone economic surprises have all but disappeared over the past month. "At some point does the cumulative pressure just precipitate a decision by countries to get out of here?" asked Stopford at Investec. "If you could turn around the economic dynamics, a lot of the other problems would look less challenging." - Reuters |
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