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Private Equity:
Outside Shareholder Opposes Dell LBO

Southeastern Asset Management is attempting to block Silver Lake’s $24.4B take-private deal

Dell Corp.’s largest outside investors opposes the $24.4 billion buyout deal that the computer maker agreed to and is willing to fight in court to stop it. The buyout is expected to bring billions in loan and bond offerings to the speculative-grade credit markets. A disruption of the deal would frustrate deal-thirsty loan and bond investors.

Memphis, Tenn.-based Southeastern Asset Management sent a letter to Dell’s board of directors on Feb. 8 outlining its opposition to the buyout deal the company made with Silver Lake Management, founder Michael Dell and Microsoft to take the company private for $24.4 billion, or $13.65 per share.

Southeastern said in its letter that the buyout agreement drastically undervalues the company, and said that by its own calculations the company is worth $24.00 per share. It said it would consider all available options in blocking the deal, including a proxy fight, litigation claims and appraisal rights under Delaware statues. The firm said it would be in favor of a go-private transaction or recapitalization transaction in another form that would put a higher value on the company.

Southeastern owns approximately 8.5 percent of the company’s public shares, making it the largest outside shareholder of the company.

A Dell representative issued a statement in response to the letter saying that the board of directors concluded that the transaction was in the best interest of shareholders and that the current 45-day go-shop period allows the company to consider alternate proposals.

The buyout of the Round Rock, Texas-based computer manufacturer would give a much-needed jolt to the U.S. leveraged loan market, which as off to its slowest start in years. On Feb. 5, Dell announced a $15 billion covenant-lite credit facility to fund its Silver Lake Management-led leveraged buyout. Lead managers are Bank of America Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.

The deal will also be financed by a combination of cash and equity contributed by founder Michael Dell, cash from Silver Lake and MSD Capital, a $2 billion loan from Microsoft, and the rollover of existing debt. Dell had approximately $9 billion in long-term debt as of Nov. 2, 2012, according to a Dec. 3, 2012 regulatory filing.

The company is expected to offer $2 billion in first-lien notes and $1.25 billion in second-lien notes, according to Standard & Poor’s.

Buyout-fueled loans have been scarce. Just three LBO loans have been signed so far in 2013, for a total volume of $683 million; that is down 93% from the same period of 2012 and the lowest for the year-to-date period since 2009, according to Dealogic.

Matthew Sheahan writes for Leveraged Finance News.

 

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