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 August 2, 2013
Michael Dell and partners sweeten buyout offer
Chances of Dell Deal Going Through Improve Dramatically 

The group of investors led by Dell Founder Michael Dell today reached a new agreement with the company that dramatically improves the chances of a buyout deal going through.

First, the facts. The new agreement raises the per share offer price to $13.75 from $13.65, bringing the total value of the deal to $24.8 billion. It also calls for a special dividend for existing Dell shareholders of 13 cents per share, totalling $234 million.

In addition, the Dell board voted to postpone a shareholder vote on the deal until September 12th and has approved changes to the voting system that further improve the chances of the buyout deal being approved by shareholders.

The Dell board took these actions today despite a new lawsuit filed yesterday by Carl Icahn aimed at preventing the board from taking them. Icahn has been the most vocal and persistent advocate for shareholders against the deal, arguing that the Michael Dell and partners offer undervalues Dell and shortchanges existing shareholders.

Even before the buyout offer was first announced back in February, we started commenting on developments as they've unfolded. We've been consistent in our themes and observations, starting with our belief that for Dell to have a future in the post-PC era, it must make the leap from a PC products company to a solutions company.

Further, it has been our position that to accomplish such a transition will take many years and cannot be accomplished under the watchful eye of Wall Street, which is concerned primarily with short-term financial gain over long-term value creation.

One thing we have not commented on is whether the buyout deal values Dell fairly. That's because the Dell deal stands out as one of a kind in a category - management buyouts - that are legendary for being unique.

We do believe that a strategic buyer for Dell -- an operating company that could take Dell as a valuable asset and through business synergies create more value in the future -- might be able to justify a better offer. What's notable, however, is not a single operating company has stepped up to consider buying Dell.
 
In other words, no one with the intention of tackling the business transformation challenge the company faces, with the goal of creating lasting value for customers and shareholders, was willing to do it.
 
Except Michael Dell.
 
In our most recent comment on Dell, published in Yahoo! Finance on July 16th -before the new agreement was reached - Marty Wolf wrote, "I believe that Dell shareholders ultimately will vote to accept Michael Dell's offer - and they should. Going private offers the company the best opportunity it has to create value for all parties involved over the long haul, including existing shareholders."
 
The alternative is not pretty. Conditions in the PC market are rapidly declining. Competitors -- including resellers turned solutions providers CDW and Softchoice (both of whom we have counseled and written about recently) are further along with transitions similar to the one Dell must make to survive.

And seven months of uncertainty has not improved Dell's relationships with customers, partners and its ability to execute on much needed acquisitions.
 
If nothing else, today's news probably means that Dell will soon be acquired by an investor group led by its founder and finally have a clear runway to attempt an all-important transition in, well, private.

While only time will tell if Dell's transition is successful, the company's last, best chance to try is coming not a moment too soon.


 
To read more about our observations about the Dell buyout deal, here are links to our ongoing commentary:
 
CRN article - January 25th - Marty Wolf quoted on whether Dell going private would be good for the company and the industry

Yahoo! Finance article - January 27th - Marty Wolf commentary on what Microsoft might gain from its then-rumored investment in Dell

Yahoo! Finance article - February 6th - Marty Wolf commentary on what Dell must do to transform its business

Yahoo! Finance article - February 13th - Marty Wolf commentary on the services Dell must add to meet market needs and grow value systems - one more thing to overcome

Yahoo! Finance article - July 16th - Marty Wolf commentary on why the Dell buyout deal is the last remaining option for Dell to have a future in the post-PC era

About martinwolf    

 

                
             San Francisco, CA                                                Bangalore, India

With offices in San Francisco and Bangalore, India, martinwolf is a leading middle market M&A Advisory focused on companies with services-based business models. Since 1997, our team has completed more than 115 transactions in six countries. We are a five-year member of the Merrill Lynch PS Referral Network, and were selected as ICICI Bank's (India's leading private bank) exclusive strategic partner for acquiring U.S. IT companies. martinwolf is a member of FINRA and SIPC. For more information, visit www.martinwolf.com.

 

To learn more about martinwolf, contact Matthew Putzulu at mputzulu@martinwolf.com.

 

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