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Dell SEC filing highlights bleak outlook that led to buyout plan

Southeastern, now a critic of the deal, first approached Michael Dell about a buyout plan

By , IDG News Service
March 29, 2013 07:35 PM ET

IDG News Service - In a filing to the U.S. Securities and Exchange Commission on Friday, Dell highlighted the dismal financial straits that led to its plan to take the company private, a move that now has some major shareholders in an uproar.

Ironically, the filing reveals that the idea of going private was first broached to CEO Michael Dell by Southeastern Asset Management, the largest independent shareholder outside of Michael Dell, which has emerged as one of the biggest opponents to the deal as it was formulated in a Feb. 5 announcement.

[ BACKGROUND: Dell could be unstable if alternative bids accepted, analysts say ]

Southeastern, which first approached Michael Dell about the idea last June, was shunted aside in the maneuvering leading up to the announcement of the deal. It has blasted the plan backed by investment firm Silver Lake Partners as undervaluing the company.

The Friday filing details the events that led up to the announcement that Michael Dell is teaming up with Silver Lake to buy the company, offering US$13.65 per share. The deal is being financed through cash and equity contributed by Dell, cash from investors affiliated with Silver Lake, cash from MSD Capital, L.P., a $2 billion loan from Microsoft, rollover of existing debt and debt financing from BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.

Dell is betting that as a private company operating outside the scrutiny of Wall Street, it will be better able to execute its strategy to push into high-margin products and services.

Dell earlier this week confirmed that it has received two counter-offers related to its plans to go private, with rival bids coming in from private equity fund manager Blackstone and entities associated with investor Carl Icahn. The offers came during a "go shop" period that took place after the February announcement, during which a special committee of the company charged with overseeing the transaction reviewed competing bids.

The filing Friday included a preliminary proxy statement for shareholders to review before a vote that is likely to take place at the end of the second quarter or the beginning of the third quarter. The Dell special committee urged shareholders to review the contents, and continued to back the announced Feb. 5 proposal.

"The current Silver Lake and Michael Dell transaction delivers $13.65 per share in cash -- a 37% premium to Dell's 90-day average price and a 25% premium to the unaffected price prior to reports in the media about the proposed deal," the Dell special committee said in a statement Friday. "We believe that this significant, immediate and certain premium offers superior value to owning Dell as a stand-alone entity today."

The special committee said it will continue discussions with Blackstone and Icahn, however. "We intend to work diligently with both of them to assist them in their respective due diligence reviews of the company and to seek definitive proposals that would constitute a superior proposal to the current Silver Lake and Michael Dell transaction," the committee said. "Michael Dell has confirmed his willingness to explore participating in alternative acquisition proposals. However, there can be no assurance that either non-binding alternative acquisition proposal will ultimately lead to a superior proposal. "

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