A Closer Look At The Dell LBO
Stephen Percoco, CFA
Stephen Percoco, CFA
Oct. 29, 2013, 11:26 AM
- 25 years after its IPO, and more than a decade after it became the world's largest PC maker (for a while), DELL is once more a private company, thanks to Michael Dell and Silver Lake's $24.9B LBO. (PR)
- Shareholders are set to receive $13.75/share in cash + a $0.13/share dividend payment. Dell has commenced the process of delisting from the Nasdaq.
Oct. 21, 2013, 5:25 PM
Sep. 12, 2013, 10:42 AM
- As was widely expected, a majority of outstanding Dell (DELL) shares have been voted in favor of Michael Dell and Silver Lake's $24.9B LBO offer. (PR)
- The transaction is expected to close before the end of Dell's Oct. quarter (FQ3). Shareholders will receive $13.75/share in cash and a $0.13/share special dividend, and are guaranteed an $0.08/share FQ3 quarterly dividend.
Sep. 12, 2013, 5:01 AM
- Shipments of tablet computers will outstrip those of PCs for the first time in Q4, research firm IDC predicts, saying that tablet deliveries will reach 84.1M units and PC shipments 83.1M.
- Those benefiting from the trend include Apple (AAPL), Amazon (AMZN) and Samsung (SSNLF.PK), while those suffering include HP (HPQ), Microsoft (MSFT) and Dell (DELL).
- The total market for Internet-connected devices of desktops, laptops, smartphones and tablets is projected to climb 28% to $622.4B in 2013 and then to $735.1B in 2015. (PR)
Sep. 12, 2013, 3:41 AM
- Michael Dell and Silver Lake are finally expected to win their battle to take Dell (DELL) private today, with their buyout proposal of $24.9B set to receive shareholder approval.
- The vote comes after Carl Icahn gave up on his attempt to gain control of Dell earlier this week.
- Michael Dell will own 75% of the company and remain CEO as he seeks to turn it around away from the unforgiving glare of Wall Street. The plan is to turn Dell into a "solutions" provider, with management set to increase their focus on three areas: security software, tools and "IT in a box."
- Yesterday, Dell set indicative pricing on a $5.5B loan that will help pay for the buyout, with the package comprising a $1.5B five-year term loan C and a $4B 6.5-year term loan B.
Sep. 10, 2013, 12:52 PM
- A source tells Bloomberg the Dell (DELL +0.1%) LBO group has secured enough votes ahead of Thursday's official shareholder vote for their $24.9B acquisition of the IT giant to go through.
- The report isn't too surprising, particularly after Carl Icahn threw in the towel yesterday.
- Dell shares are at $13.85, or less than 1% below the $13.96/share being offered by the LBO group (after factoring dividend payments).
Sep. 9, 2013, 9:59 AM
- Declaring in a shareholder letter it would be "almost impossible" to prevail in a Sep. 12 shareholder vote, Carl Icahn says he won't "pursue additional efforts" to thwart Michael Dell/Silver Lake's LBO bid. (14A)
- Icahn also encourages those angry at Dell's (DELL) board to follow him on Twitter "where from time to time I give my investment insights."
- Icahn's decision formally removes the last obstacle for the LBO offer ($13.75/share + $0.13/share special dividend + a guaranteed $0.08/share quarterly dividend payment) to be approved on Thursday. Informally, investors have already been expecting as much; Dell shares are nearly unchanged today.
- More on Dell/Icahn
Aug. 29, 2013, 5:01 PM
- Worldwide PC shipments are expected to fall 9.7% in 2013, according to IDC. Today's figure represents the second time the research firm has slashed its projection, from -7.8% in May, and from an original -1.3% back in March.
- Tablets are the main transgressor, IDC noted. And China and other developing economies, which were once healthy drivers of PC sales, have seen demand dry up at even faster rates than developed markets.
- Cannibalization appears to favor the small, as IDC nudged its 2013 tablet forecast to 227.4M, from 229.3M previously. To blame? New smartphones with large screens and the release of wearable devices like smart watches.
- The ever-dimming light at the end of the tunnel bodes poorly for MSFT, INTC, DELL, HPQ, STX, WDC, MU, AMD, and NVDA.
- Previous: Global PC shipments fell 10.9% Y/Y in Q2 to 76M
Aug. 28, 2013, 2:52 PM
- The decline is a little better than Q1's 5% drop, but still points to a bleak demand environment, as enterprise attempts to improve server efficiency (via consolidation and virtualization) and a mix shift towards cheaper, white-label servers preferred by Internet/cloud companies hurt sales. (PR)
- IDC is even more pessimistic, estimating revenue fell 6.2% and units 1.2% (lower ASPs). (PR)
- x86 servers (largely INTC-based) continue gaining share: Gartner thinks sales rose 2.1% Y/Y and units 4.5%. The opposite holds for Unix servers: sales -25.3% and units 27.4%. "Other" server sales (inc. IBM mainframes) rose 6.9%.
- IBM and H-P (HPQ), whose enterprise hardware units have fallen on hard times, remain the industry's top vendors, but continue to bleed share. IBM's share fell 160 bps Y/Y to 25.6%, and H-P's 420 bps to 25%.
- DELL and Cisco (CSCO), as demonstrated by recent earnings numbers (I, II), remain share gainers. Dell +210 bps to 17.7%, Cisco +150 bps to 4.4%. Oracle (ORCL), which is seeing rising (Intel-based) engineered system sales and plunging Unix/SPARC CPU server sales, is assigned a 5.8% share (-20 bps).
- "Other" vendors, including white-label firms, had a 21.5% share (+230 bps). IDC estimates sales of density-optimized servers (beloved by Internet companies) rose 26.6% to $735M, and now make up 6.2% of server revenue.
Aug. 16, 2013, 2:05 PM
- Judge Leo Strine has rejected Carl Icahn's bid (previous) to fast-track his legal challenge to Michael Dell/Silver Lake's Dell (DELL +0.8%) LBO offer.
- The ruling paves the way for a Sep. 12 vote on the offer to take place.
- Strine asserts there's no evidence to back up Icahn's claim the vote is rigged against his competing offer, or that shareholders are being coerced. "I think the special committee would dance in the streets if the Icahn group would make a topping bid that was firmly financed and would buy out everybody's shares at a greater price."
- Dell shares have ticked higher to $13.81 following the ruling.
Aug. 16, 2013, 7:56 AM
- Carl Icahn and Dell (DELL) are due in court today, when the activist investor will ask a judge to fast-track his lawsuit against the company in his battle for control of the firm with Michael Dell.
- Icahn wants to delay a shareholder vote on Michael Dell's and Silver Lake's offer for the company, which is due for September 12, and instead hold an annual meeting first, where he would attempt to install his own candidates as board members and fire the CEO.
- Icahn also wants to force Dell's special committee to reverse its decision not to count abstention votes as no votes. Not including them in the tally is seen as advantageous to the buyout group.
- Yesterday, Dell reported Q2 earnings that topped forecasts but net profit slumped 72% to $204M.
Aug. 15, 2013, 4:26 PM
- FQ2 revenue of $14.51B (up slightly Y/Y) soundly beat a $14.18B consensus, as DELL continues to sacrifice margins to gain share (or simply lose less of it). Gross margin was 18.5%, -100 bps Q/Q and -310 bps Y/Y.
- Enterprise hardware revenue +8% Y/Y to $3.3B (23% of total). Dell continues to take server and Ethernet switch share (networking +19%). Storage remains soft, -7%. Division op. income -9% Y/Y to $137M.
- PC division sales (still 63% of revenue) -5% Y/Y to $9.1B, though that's better than FQ1's 9% drop and a ~10% calendar Q2 industry decline. Desktops +1%, notebooks +10%, 3rd-party software/peripherals -5%. Thanks to aggressive pricing, the division's op. income fell 71% Y/Y to $205M.
- Services +2% to $2.1B. Op. income +1% to $339M.
- Software revenue +228% Y/Y to $310M, thanks to Quest and other acquisitions. Op. loss of $62M thanks to R&D investments.
- Company-wide R&D spend +23% Y/Y to $320M, as Michael Dell gets his post-LBO strategy going ahead of time. SG&A +6% to $2.1B.
- DELL +0.2% AH to $13.73, a little closer to the $13.88/share LBO offer price ($13.75/share + $0.13/share special dividend).
- FQ2 results, PR
Aug. 15, 2013, 4:05 PM
- Dell (DELL): Q2 EPS of $0.25 beats by $0.01.
- Revenue of $14.5B. (PR)
Aug. 15, 2013, 6:03 AM
- Citigroup is cautious on Lenovo (LNVGY.PK) despite a small earnings beat. "The PC industry, particular in emerging markets, will continue to be challenging due to cannibalization by low-price tablets... With rising inventory levels and a weak China PC demand outlook in H2, Lenovo would have to maintain flawless execution to meet high Street expectations and margin guidance."
- On the bright side, Citi notes Lenovo managed to stretch its China PC margin despite declining sales.
- On SA: Pro author Stephen Simpson maintains PC-related fears and pessimistic views of Lenovo's mobile device opportunity have left shares deeply undervalued.
- Over the past year, LNVGY is +23.4%. Peer performance over this period: DELL +10.6%. HPQ +38%.
Aug. 11, 2013, 1:42 AM
- Delaware's Court of Chancery is scheduled to hold a hearing tomorrow over whether to fast-track Carl Icahn's legal challenge to Michael Dell's and Silver Lake's bid to take Dell (DELL) private.
- Time is of the essence for Icahn, with a shareholder vote on the offer due on September 12, the financing for his rival proposal for Dell set to expire on September 17, and the company's board scheduled to vote on October 17.
- Icahn wants simultaneous ballots on his and Michael Dell's bids, while he's also unhappy about changes to the voting requirements that he believes have rigged the ballot against him.
Aug. 6, 2013, 2:37 AM
- Carl Icahn bought 4M more Dell (DELL) shares last week, taking his total holding to 156.5M shares and his stake to 8.9% from 8.7%.
- Icahn, who is battling Michael Dell and Silver Lake for control of the company, bought the stock the same day he filed a lawsuit seeking to block a a possible change to the shareholder date of record.
- A day later, the buyout group sweetened their offer to $13.75 a share plus a $0.13 special dividend, and pledged that the quarterly $0.08 dividend would be paid. In return, Dell's special committee pushed back the date of record to August 13.
- Icahn bought the shares at $12.94 each, meaning he'd make a profit on the transaction if Michael Dell's and Silver Lake's new bid is accepted.
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