And Now The Argument For Why Dell Will NOT Go Private

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When Bloomberg broke the news that Dell may take itself private yesterday, the Street jumped — A leveraged buy-out deal, a big one… the likes of which haven’t been seen since 2007.Big.

Maybe too big. That’s the bear argument for why this deal won’t get done, brought to us by Fortune’s private equity reporter, Dan Primack.

His maths on the deal looked a lot like ours. A takeover would cost around $23 billion as Dell is currently worth around $21 billion. If investors had to put together a 35% equity commitment that would mean PE firms would have to kick in around $5 billion after Michael Dell’s shares are rolled over.

Now, this morning it was reported that Silver Lake and TPG were talking to Dell about the deal. By Primack’s reckoning though, a third firm would have to be brough in.

From Primack:

…you’d probably need a third mega-firm to join, in addition to large co-investments from their limited partners. I’ve heard that Blackstone isn’t currently a player, but it did just poach Dell’s top dealmaker to do tech investments (his first day was yesterday)…

Sounds reasonable in 2007, but not in 2013. Many of those big club deals were losers, and almost all of the participating firms currently are defendants in a related price-fixing lawsuit (including Silver Lake and TPG). All of the defendants deny any wrongdoing, but that doesn’t mean they want to draw new attention to themselves by teaming up on the largest leveraged buyout in years. Moreover, firms like TPG have used their lack of recent club deals — none in its current fund — as a talking point when buttering up limited partners who aren’t thrilled with the firm’s recent performance (if it does Dell and Best Buy, that marketing line is finished).

Primack goes on to point out that even if all those obstacles are overcome, the deal would still require $15 billion of leveraged financing. And while Dell does have $11 billion in cash, about $4 billion of that would have to be brought home from overseas.

From Primack:

“I think it’s stretching the bounds of reality,” one tech-focused private equity exec explained to me after the Bloomberg report came out. “It’s possible, but I wouldn’t hold my breath.”

So that’s the bear side for you.