Dell Inc Says Remaining a Public Company Is Risky

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Dell Inc Says Remaining a Public Company Is Risky

Dell Inc. (NASDAQ:DELL) released its long awaited 274-page preliminary proxy statement to shareholders. Dell Inc. commented on the rationale for going private. Dell argued that taking on too much debt while staying public is risky as the company’s profitability is becoming more unfavorable. The comment also indicated that the proposals offered by activist investor, Carl Icahn and the Blackstone Group (NYSE:BX) was subpar.

The preliminary proxy statement released by Dell Inc (NASDAQ:DELL) provided an explanation to the shareholders of the third largest PC maker why the buyout proposal offered to them by its CEO Michael Dell together with a consortium of private equity firms led by Silver Lake Partners is better than the alternatives.

Last Monday, Dell Inc. (NASDAQ:DELL) confirmed reports that it received two proposals from The Blackstone Group L.P. (NYSE:BX) and Carl Icahn. The private equity giant offered to acquire the shares of the PC maker for $14.25 per share while Carl Icahn proposed $15 per share. Both bid were higher than the $13.65 per share proposal of Silver Lake Partners’ consortium.

Dell did not provide any direct comment regarding the proposals submitted by the Blackstone Group (NYSE:BX) and Icahn, but the company indicated that a leveraged recapitalization for the company to remain public is problematic. Dell Inc. (NASDAQ:DELL) said,  “Even when taking into account the certain value distributed to stockholders, (a leveraged recapitalization) would be unlikely to result in an aggregate value exceeding the $13.65 per share merger consideration and would present a number of risks and challenges.”

In addition, the company emphasized that a leveraged recapitalization would reduce the confidence of customers, employees and suppliers on its prospects over the long-term and limit its ability to implement an aggressive long-term strategy.

Based on the independent analysis conducted by the Boston Consulting Group, Dell Inc. (NASDAQ:DELL) revenue is expected to decline annually through 2016. The company projected a decline in operating income for the fiscal 2014 to $3 billion from its previous estimate of $5.6 billion.

According to the company, under the go-private proposal of Silver Lake Partners and its CEO, Dell plans to boost its investment on research and development (R&D) and increase the number of its personnel. The buyout group has no plans to sell the major assets of the PC maker after the buyout is completed.

Finally, Dell Inc (NASDAQ:DELL) revealed that a strategic party is interested in acquiring its financial services business at around $3.5 billion to $4.5 billion excluding its liabilities.

All the SEC filings related to the going private LBO can be found here.

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