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The Challenges of Taking Dell Private

In: Business and Management

Submitted By klever
Words 1007
Pages 5
By exploring the possibility of going private, Dell appears to hope that it can finally fix the problems that have led to a 40 percent plunge in stock price over the last five years.

There's one problem, however: Going private may not be all that easy -- or help out the company in the end.

The effort is under way, people briefed on the matter have confirmed to DealBook, with Dell talking with private equity firms and exploring obtaining bank financing. It's unclear how long it will take to reach a completed deal, though reports have suggested it may take nearly two months.

But a leveraged buyout of a company as big as Dell would be no small feat, and it would be dependent on overcoming hurdles specific to the private equity industry and the company itself.

As of Friday, before Bloomberg News reported the discussions with private equity, the company was valued at about $18.9 billion, based on a stock price of $10.88. Applying a 31 percent takeover premium, which was the average paid for high technology L.B.O.'s last year, according to Thomson Reuters, to that number would lead to a potential deal being valued at about $24.8 billion.

Of course, Dell's stock has gone up higher since, reaching $12.60 by early Tuesday afternoon.

Many private equity executives, and the advisers who clamor for their business, have been longing for the return of bigger buyouts. No private equity deal has come close to the deals struck during the height of the credit boom that ended in 2007; a Dell takeover would be the biggest since the $25 billion takeover of Hilton Hotels in July of 2007.

To date, no leveraged buyout since the financial crisis of 2008 has topped the $7.2 billion that Kohlberg Kravis Roberts and others paid for the Samson Investment Company a year and a half ago. And many advisers say that it's hard to consider completing a deal above $10 billion....

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