Dell shares soar on talk of going private
Michael Dell, centre, between Steve Felice, Dell president and chief commercial officer (left) and Marius Hass, president enterprise solutions, at Dell World 2012. Photo: Lia Timson
Dell shares have soared as rumours spread that the Texas-based computer maker is exploring the option of going private with the help of equity firms.
Dell shares were up more than 12 per cent to $US12.27 as the close of the trading day neared on the Nasdaq exchange, giving the company a stock-based value of nearly $US22 billion ($21 billion).
Unconfirmed word reached investors that Dell was in talks to delist itself from the exchange and sell itself into private hands, according to Meeschaert Capital Markets president Gregori Volokhine.
Discussions with 'two firms'
Both Bloomberg and Reuters reported the world's No. 3 PC maker was in talks with private equity firms on a potential buyout deal, quoting unnamed sources "familiar with the deal".
The company was discussing going private with at least two firms, Bloomberg said, quoting one source, who declined to be identified because the talks were private.
The discussions were preliminary and could fall apart because the firms might not be able to line up the needed financing or resolve how to exit the investment in the future, the people said.
Several large banks had been contacted about financing an offer, one of the people said, according to Bloomberg.
Dell declined to comment on what it referred to as rumour and speculation.
The stock surge was attributed to belief in the market that taking the company private would require buyers to pay a "significant premium" to get shares, Mr Volokhine said.
The move, considered far from certain on Monday, would come as smartphones and tablets eclipse laptop and desktop computers as preferred devices for lifestyles in which the internet is increasingly accessed on-the-go.
Industry tracker Gartner on Monday reported that the PC market saw shipments worldwide shrink 3.5 per cent last year.
Dell, the third largest PC maker, saw its share of the market shrink by 12.3 per cent.
Mr Volokhine said he expected Dell to soon make a decision about going private, a move, he added, would take several investment funds given the high price tag.
Shares of powerhouse Dell rival Hewlett-Packard also rose on Monday, increasing more than five per cent to $US16.98 as the formal trading day neared its close. HP sales dropped 6.7 per cent last year, according to Gartner.
Michael Dell founded the company in 1984 in his University of Texas dorm room with $US1000 when he was 19. He catapulted it to the top of the industry by cobbling together PCs from off- the-shelf parts and delivering them directly to consumers at a lower cost than rivals including IBM.
Dell lost the top spot to Hewlett-Packard in 2006 and more recently has struggled to contend with new rivals, including Apple, in the consumer market.
Based on Dell’s market value as of January 11 and depending on the size, a deal could be at least the largest buyout of a technology company since 2007, when KKR bought First Data Corp for more than $US25 billion, according to data compiled by Bloomberg.
It could also be the largest acquisition in the computer industry since Hewlett-Packard acquired Compaq for about $US19 billion in 2002, the data show.
Large leveraged buyouts have been scarce since the financial crisis. Other technology companies, including disk- drive maker Seagate Technology, have attempted to go private and had the talks fall through over valuations or difficulty in financing deals.
Goldman Sachs upgraded the stock to buy in December, saying that Dell’s net cash balance presents an opportunity for a leveraged buyout.
While demand for PCs has declined, Dell’s net cash balance of $US5.15 billion provides “some downside buffer as it produces opportunity for an LBO or levered recap under the right conditions,” Bill Shope, an analyst at Goldman Sachs, wrote in the report. “Dell has become an attractive deep value play and we would be buyers of the stock.”
Michael Dell, who retook the CEO position in 2007, said in 2010 he had considered taking the company private.
AFP, Bloomberg, with BusinessDay