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Some Dell Shareholders Don't Know Much About This Leveraged Buyout, But They Know They Don't Like It

from the no-need-for-details,-just-be-angry dept

Thu, Feb 7th 2013 7:05pm — Dealbreaker

Cross-posted from

The Dell deal documents are out and they are short of juicy details; we'll have to wait for the proxy for details on things like just how much of a discount Michael Dell is taking on his shares or what exactly the terms of Microsoft's loan are. There is, though, the information that that loan will take the form of $2 billion of subordinated debt, and that the total cash equity investments from Silver Lake, Michael Dell and MSD will total $2.25bn. This seems pretty sensible; Microsoft is effectively writing half of the equity check, though for a fixed-but-subordinated return, plus emotional benefits or what have you. And if you're worried about how easily debt markets will swallow some $3.25bn of bonds, $5.5bn of Term B/C, and billions of assorted other secured financing,¹ which with $4bn of existing bonds brings Dell to around 4x total leverage, making $2 billion – almost half a turn – of the debt subordinated, long-term, and emotionally committed can’t hurt.

But for most of the fun stuff we’ll have to look forward to the proxy. And that isn't good enough for some people. Reuters reports that the first shareholder lawsuit over the deal has already been filed, one day after announcement, which I assume means it was in the works before the deal was announced. This sort of amazed me:

Some shareholders said they were angered by the lack of specifics about the deal, making it hard for them to determine if the price was fair. The company, which declined to comment on the lawsuit, had said the board had conducted an extensive review of its strategic options before agreeing to the buyout.

I would characterize myself as mildly saddened by the lack of specifics, but that's why I will wait until the proxy is out and then read the specifics. You know there's a whole section of the proxy explaining why the bankers thought the deal was fair, right?²

There’s nothing new here – as Reuters notes, "Almost every merger worth more $100 million prompts a shareholder lawsuit" -- but the speed continues to amaze. And it's becoming ever more a fact of life:

That’s from this depressing report, which also has a sad-comical list of 16 deals each with 15 or more lawsuits filed. (The tech industry averages 4.9 suits, so, y'know, look out for 3.9 more.)

You can sympathize a little. Management buyouts are of course all about bottom-ticking the stock price; management would be pretty dumb if they took the company private at its all-time high. Dell's various stakeholder communications -- all to the tune of "this will is the start of a whole new chapter for Dell, in which everything will remain exactly the same" -- make that pretty clear: the deal has little to do with operational changes and much to do with the fact that Michael Dell thinks that (1) Dell and (2) debt are both cheap right now.

But that's kind of the market, and the fact of life is that if shareholders think that $13.65 is too cheap for their shares, they can always vote the deal down. By all accounts this deal was pretty fully negotiated, so it seems unlikely that the lawsuit will reveal that Dell and Silver Lake would have coughed up an extra $1 a share if the board had just asked more aggressively. And it's no secret that Michael Dell thinks that his company is worth more than $13.65. Even if that hasn't been specifically disclosed yet.

Dell 8-K, Merger Agreement, Voting Agreement [EDGAR]
Dell Buyout Broken Down: Silver Lake Puts in $1.4 Billion [Deal Journal]
Dell Aims for Double-B Rating, Leverage Less Than 4x Ebitda [Deal Journal]
Dell investor sues to block founder’s leveraged buyout [Reuters]
Reasons to Be Suspicious of Buyouts Led by Management [DealBook]
Dell’s Talks Said to Break Up a Few Times Over Pricing [Bloomberg]

1. From the 8-K:

Each of Bank of America, N.A., Barclays Bank PLC, Credit Suisse AG and Royal Bank of Canada and, in some cases, certain of their affiliates (collectively, the “Lenders”) have committed to provide debt financing for the transaction, consisting of a $4 billion senior secured term loan B facility, a $1.5 billion senior secured term loan C facility, a $2 billion ABL facility, senior secured interim loan facilities consisting of a $2 billion first lien bridge loan facility and a $1.25 billion second lien bridge loan facility (or, alternatively, senior secured first lien and second lien fixed rate notes that would be issued in a high-yield offering pursuant to Rule 144A under the Securities Act of 1933), a $1.9 billion term commercial receivables financing facility and a $1.1 billion revolving consumer receivables financing facility, each on the terms and subject to the conditions set forth in a commitment letter dated as of February 5, 2013 (the "Debt Commitment Letter").

2. The answer is always along the lines of "because you paid us to think that," but still.

Other posts from Dealbreaker:

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Filed Under: details, lawsuit, leveraged buyout, shareholders
Companies: dell, microsoft

8 Comments

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charliebrown (profile), 7 Feb 2013 @ 8:21pm

Stock Market
Shareholders can take some earnings from the company they hold shares in. Fair enough, that's the good part of the share market. The stupid part is when you buy shares with the sole intention of selling them later in the hopes of making a profit. That's how you can loose lots of money. In fact, you need lots of money in the first place. If you hold on to the shares and collect the dividends, then you won't loose any money. In fact, you will make money. Slowly, yes, but steadily, especially in a company that is very stable. Whereas, if you buy and sell constantly, thus "playing" the share market, you're essentially gambling with your money. So, to me, the price of the share doesn't matter. It's how much it pays off in dividends that matters. So if you've got money and you're looking to the stock market to make more money, either invest long term or you might as well take a holiday in Vegas.
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Anonymous Coward, 7 Feb 2013 @ 9:50pm

Re: Stock Market
I hate when I loose money. It is not as bad as when I lose it though.

Growth stocks?
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G Thompson (profile), 8 Feb 2013 @ 1:05am

Re:
Jeez the spamming is either getting really good with MongoDB shrills or you actually believe the hype. Though seeing as this is the third time in a week that I have seen the same speal about MongoDb contextualised to a TD post.. though this is more offTopic then I'm going with the subliminal spamming.

My opinion.. Get a LAMP system (and the M isn't Mongo) and try to set up your own stock exchange using quasi or pure SQL (or even relational calculus).. Though expect to be treated like Antigua has since basically a stock exchange is another form of Gambling.
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Josh in CharlotteNC (profile), 8 Feb 2013 @ 5:19am

Re: Stock Market
If you hold on to the shares and collect the dividends, then you won't loose any money. In fact, you will make money.

This is not necessarily true. Any company can implode and go all the way to zero. However small the chance, it is still possible. If you're not prepared for that, you shouldn't be in the market at all.
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Anonymous Coward, 8 Feb 2013 @ 7:02am

Re: Re:
The word is "spiel", from the German "play". But yeah what's with all the MongoDB cheerleaders sprouting like toadstools?
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Anonymous Coward, 8 Feb 2013 @ 8:10am

"And if you're worried about how easily debt markets will swallow some $3.25bn of bonds, $5.5bn of Term B/C, and billions of assorted other secured financing,1 which with $4bn of existing bonds brings Dell to around 4x total leverage, making $2 billion � almost half a turn � of the debt subordinated, long-term, and emotionally committed can�t hurt."

Is that a sentance? Shouldn't "And if you're worried..." have some sort of "let this put your fears to rest" sort of close to it?

Also "this will is the start of a whole new chapter for Dell, in which everything will remain exactly the same" has a typo in it too, somewhere ("this will is", maybe it should be "this will be"?) Did Dell write a will? thats the only way that would make sense, unless a "will" is a financial term i'm unfamiliar with.
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John Fenderson (profile), 8 Feb 2013 @ 2:29pm

Re: Re: Re:
I sense that someone hired an SEO "expert".
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charliebrown (profile), 10 Feb 2013 @ 11:18am

Re: Re: Stock Market
Correct and agreed!
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