PE Firm Lines Up $15 Billion To Take Dell Private

Michael DellMichael Dell, founder and CEO of Dell, Inc.

Photo: AP

Silver Lake Management LLC and partners are close to lining up about $15 billion in funds for a buyout of Dell Inc., the third-biggest maker of personal computers, said people familiar with the matter.Lenders including Credit Suisse Group AG, Royal Bank of Canada, Barclays Plc and Bank of America Corp. may informally disclose terms to a small group of possible buyers of the bridge loan as soon as today, said one of the people, who asked not to be named as the process is private. Dell’s enterprise value is about $19.7 billion, according to data compiled by Bloomberg.

The deal could be announced as soon as next week, said one of the people. The lenders are informally canvassing debt investors to gauge whether they can parcel out pieces of the financing in a so-called syndication process once the deal is final, another person said. JPMorgan Chase & Co., which is advising Round Rock, Texas-based computer maker Dell, would also provide so-called staple financing to the group led by Silver Lake, said one of the people.

The technology-focused buyout firm’s financing is crucial to completing a leveraged buyout of Dell, which would be the biggest since the financial crisis. The rest of the funds to take Dell private would come from Silver Lake and its partners, Dell itself or founder and Chief Executive Officer Michael Dell, said one of these people.

Dell, which lost almost a third of its value last year, is struggling amid competition from tablet makers such as Apple Inc. Going private may give Dell more room to overhaul the company’s corporate structure and focus on data-centre equipment instead of PCs.

LBO Benefits
Turning the computer maker into a private company would allow Michael Dell and his private-equity backers to manage the company’s finances differently, said a person familiar with the matter. For example, they could borrow money by securitizing accounts receivables, a move a public board and public shareholders would likely reject, said this person.

David Frink, a spokesman for Dell, declined to comment. Jason Golz, a spokesman for Silver Lake at Brunswick Group, didn’t return a call and an e-mail seeking comment. Officials at Credit Suisse, JPMorgan, Barclays, Bank of America, and Royal Bank declined to comment.

TPG Capital, which earlier looked at participating in a transaction, is unlikely to be part of any deal with Silver Lake, said a person familiar with the matter. KKR & Co., which considered a deal with Dell last year, also isn’t likely to bid at this time, said another person. Representatives at TPG and KKR declined to comment.

Top Shareholder
Silver Lake has ammunition some other buyout firms don’t: It just raised $7 billion for a new fund that could swell to as much as $10 billion, two people familiar with the matter said this week, and that fund can only invest in technology companies. Michael Dell also was one of the early investors in Silver Lake’s initial fund of $2.3 billion.

Under the current negotiations, Michael Dell, the top shareholder in the computer maker, would roll his stake into the buyout, said one of the people. Dell, 47, owns about 15.7 per cent of the company, according to data compiled by Bloomberg, valuing his stake at $3.45 billion, based on yesterday’s closing price.

Based on the company’s market value, a deal could be the largest buyout of a technology company since 2007, when KKR bought First Data Corp. for more than $25 billion, according to data compiled by Bloomberg. It might also be the biggest acquisition in the computer industry since Hewlett-Packard Co. Compaq Computer Corp. for about $19 billion more than a decade ago, the data show.

Scarce Tech Buyouts
Large leveraged buyouts have been scarce since the financial crisis. The biggest for the technology sector in the past two years was Blackstone Group LP’s $3 billion purchase of health-care billing company Emdeon Inc., according to data compiled by Bloomberg.

Other technology companies, including disk-drive maker Seagate Technology Plc, have tried to go private and seen talks collapse over valuations or financing difficulties.

Silver Lake has been investing in technology companies since its founding in 1999. Its latest fund, Silver Lake Partners III LP, was generating an 18 per cent net internal rate of return, according to data from California Public Employees’ Retirement System, a limited partner.

In 2009, the Menlo Park, California-based firm bought a majority stake in Skype Technologies SA from EBay Inc. in a deal that valued the calling service at $2.75 billion. Less than two years later, Microsoft Corp. agreed to buy Skype for $8.5 billion.

While Skype yielded a threefold return for Silver Lake, another big bet didn’t. Silver Lake’s 2007 investment in communications equipment maker Avaya Holdings Corp. was marked at cost as of Dec. 31, 2011, meaning the firm has yet to book a profit on the deal, according to a marketing document.

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