Dell board recommends sale; rejects `risky’ leveraged recap

Dell Inc on Friday said a leveraged recapitalisation of the company would be risky as it saw bleak prospects for computer makers and that it would rather go for the $13.65-per-share buyout agreed with founder Michael Dell and the private equity firm Silver Lake Partners.

Dell issued a proxy statement on Friday, which analyses the reason behind the board of directors accepting a $24.4 billion offer to go private, as well as the alternative proposals by Blackstone and Carl Icahn.

Under the Michael Dell-Silver Lake offer, Dell will own 75.9 per cent of the company, with Silver Lake owning the rest.

Dell said the post-buyout plan anticipated adding a significant number of sales personnel and boosting spending on research and development. It has no plans to embark on major assets sales following the buyout, it added.

While remaining public, the restructuring plan envisioned by Michael Dell and Silver Lake would not be to the liking of shareholders and the stock could suffer, Dell said.

Dell also said a strategic party expressed to acquire its financial services business for its book value, estimated at between $3.5 billion and $4.5 billion, excluding debt.

In a 274-page filing on Friday with the Securities and Exchange Commission, tech giant said it was increasingly fighting for market share in an industry that appeared on a downward spiral.

Dell revealed that its special committee, chaired by Alex Mandl, set up to assess all possible strategic alternatives for the company, also comprises of board members Laura Conigliaro, Janet Clark and Kenneth Duberstein.

Dell issued a statement receipt of two alternate proposals in the ''go shop'' period.

''As the board's special committee continues to oversee its process, we remain focused on our customers and on providing innovative products and solutions to help them succeed and better compete in the marketplace.

''Since its founding in 1984, Dell has been dedicated to delivering a best-in-class customer experience and today, the top priority of our more than 100,000 team members is serving our customers around the world,'' it said in a release.

The special committee of the board of Dell Inc on 25 March announced two alternative acquisition proposals received during the ''go-shop'' period - one submitted by a group affiliated with a private equity fund managed by Blackstone and the other by entities affiliated with Carl Icahn.

''We are gratified by the success of our go-shop process that has yielded two alternative proposals with the potential to create additional value for Dell shareholders. We intend to work diligently with all three potential acquirers to ensure the best possible outcome for Dell shareholders, whichever transaction that may be.''

''The special committee, consisting of four independent and disinterested directors, has determined, after consultation with its independent financial and legal advisors, that both proposals could reasonably be expected to result in superior proposals, as defined under the terms of the existing merger agreement. Therefore, each of the Blackstone and Icahn groups is an ''excluded party'' and the special committee intends to continue negotiations with both,'' it said.

The special committee also noted that Michael Dell has confirmed to the committee his willingness to explore the possibility of working with third parties regarding alternative acquisition proposals.

''We are gratified by the success of our go-shop process that has yielded two alternative proposals with the potential to create additional value for Dell shareholders. We intend to work diligently with all three potential acquirers to ensure the best possible outcome for Dell shareholders, whichever transaction that may be,'' Alex Mandl, chairman of the special committee, said.

Pursuant to the existing merger agreement, subject to certain requirements, the special committee has the right to terminate the agreement in order to accept a superior proposal.

''The special committee has not determined that either the Blackstone proposal or the Icahn proposal in fact constitutes a superior proposal under the existing merger agreement and neither is at this stage sufficiently detailed or definitive for such a determination to be appropriate. There can be no assurance that either proposal will ultimately lead to a superior proposal,'' it said.

''While negotiations continue, the special committee has not changed its recommendation with respect to, and continues to support, the company's pending sale to entities controlled by Michael Dell and Silver Lake Partners,'' it added.

Prior to entering into the existing merger agreement, the special committee undertook a rigorous process, over a period of more than five months, to evaluate Dell's risks, opportunities, and strategic alternatives. These alternatives included continuing with or modifying the company's existing business plan, implementing a leveraged recapitalisation, changing the dividend policy, and potentially selling all or parts of the business.

The special committee unanimously determined that the sale of the company at a premium would be the best alternative for stockholders, and negotiated aggressively to ensure that stockholders receive the highest possible value, including securing provisions for a robust ''go-shop'' process. The result was that a number of strategic and financial parties entered into confidentiality agreements with the company and Blackstone and Icahn submitted proposals.

The price of $13.65 per share in cash to be paid pursuant to the existing merger agreement provides value certainty at a 37 per cent premium to the average price for the 90 days before rumors of the transaction surfaced. The committee noted that the Silver Lake Partners raised its bid six times by a total of approximately $4 billion, or over 20 per cent, during the course of negotiations.

Subject to applicable laws and regulations, the special committee undertakes no obligation, to provide updates or make further statements regarding the proposals received from Blackstone or Icahn, any revised proposals that may be received from either of them or the status of discussions with either of them, unless and until a definitive agreement is reached or such discussions are terminated, it added.