Dell's $24.4 Billion Buyout: Is This What the Fed's Ben Bernanke Wanted?
On Tuesday, Moody's downgraded Dell's bond ratings from A2 to Baa1, citing the company's proposed takeover. Further multi-notch downgrades are likely, according to Moody's, which holds Dell's Baa1 rating on review for a cut.
"Moody's expects that conclusion of the review will likely result in a multi-notch rating downgrade of the long term rating to below investment grade given the proposed transaction's planned use of debt and Dell's continuing business challenges," the agency wrote.
Still, Dell's debt-fueled takeover may be a bailout for shareholders, even if large hurdles remain in the proposed deal.
Dell's buyout represents a premium of 25% over the closing share price of $10.88 on Jan. 11, the last trading day before Bloomberg reported the prospect of a potential deal.
Tuesday's proposed shareholder payout -- which is much lower than it would have been a year ago -- may be an exit point for investors, given the company's declining sales and market share. In January, Gartner calculated that Dell sold 37.6 million PCs in 2012, a 12.3% year-over-year decline that reflected market-share losses to Lenovo.
According to a press release, Dell formed a special committee after the company founder Michael Dell approached the Board of Directors with a takeout proposal in August 2012.
Shortly thereafter, boutique investment bank Evercore Partners (EVR) was hired to field competing bids to the Michael Dell-led consortium. However, it appears no bids in excess of Tuesday's $13.65 price tag have emerged. Dell will hold a 45-day "go-shop" period to find a higher bidder.
Any competing bids during the 45-day period will carry a $180 million termination fee. Bids outside of that period will be subject to a $450 million fee, according to a press release.
"I believe this transaction will open an exciting new chapter for Dell, our customers and team members," Michael Dell said in a statement. "We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise."
Michael Dell will remain chairman and CEO in the proposed leveraged buyout, which will go to a shareholder vote. Dell expects the deal to close in its fiscal second quarter.
Investment bank Goldman Sachs and law firm Hogan Lovells are acting as advisers to Dell. JPMorgan, Evercore Partners and law firm Debevoise & Plimpton will advise the special committee of Dell's Board of Directors.
-- Written by Antoine Gara in New York