Will Dell Go Private or Not?
Analysts have given their admonishments and expressed their doubts, but even so, negotiations between the struggling computer manufacturer Dell (NASDAQ:DELL) and at least four major banks have reached an advanced stage. Sources familiar with the matter told Reuters on Tuesday that buyout firm Silver Lake, which will orchestrate the deal to take Dell private, has lined up Credit Suisse (NYSE:CS), Bank of America (NYSE:BAC) Merrill Lynch, Barclays (NYSE:BCS), and RBC (NYSE:RY) as possible financiers.
Earlier Tuesday morning, CNBC reported that private equity investor Wilbur Ross gave the deal a 50-50 chance of becoming a reality because the buyout’s leverage sponsors and equity sponsors would have to “buy into the theory that [Dell] was really going to turn around quickly.” With the company’s earnings “in a kind of free-fall” and its business failing to catch up to the current technological trend, that possibility seemed unlikely to Ross. Bloomberg Television’s Jon Erlichman also found the leveraged buyout option doubtful, as private equity deals are “about fixing a business and creating more value for the players involved.”
Bernstein Research analyst Toni Sacconaghi even told Reuters that the odds of the buyout were “probably low, given its size and our expectation that it may require about $4 billion in equity.”
However, recent events indicate that the buyout could be plausible. Sources informed Reuters that a deal may be announced soon, but cautioned that nothing had yet been made official. Dell courted offers from private equity firms throughout last year, but those talks did not begin to galvanize until its final months. Ever since he returned to the company in 2010, the company’s founder, Michael Dell. has discussed taking the company private, and that desire grew as the computer maker continued to struggle in the changing market.
While analysts, including Sacconaghi, have warned of the difficulties of the Dell buyout deal, Goldman Sachs has supported that possibility since December, when the firm upgraded the company’s stock to a buy because its strong cash balance presented an opportunity for a leveraged buyout. Shares of Dell ended Tuesday up more than 7 percent, closing at $13.17.
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