Emphasizing data-center products and services has helped Dell stave off margin erosion. Gross margin is projected to be 22.4% in fiscal 2014, compared with 22.3% in 2012.
Still, the transformation into a provider of a range of business services, designed to lessen Dell’s dependence on the PC market, didn’t come swiftly enough to prevent going private from being the more attractive option.
Dell’s transaction, if completed, would be the biggest LBO since Blackstone Group LP’s $26.2 billion acquisition of Hilton Worldwide Inc., which was announced in July 2007. That deal was struck just as credit markets were seizing up amid a surge in subprime-mortgage defaults. Banks, stuck with loans they couldn’t sell to investors, backed away from financing leveraged takeovers.
While debt markets have loosened up since 2010 as interest rates have fallen, the biggest LBO since 2007 was the $7.2 billion KKR & Co. paid for Samson Investment Co., the Tulsa, Oklahoma-based oil and gas producer, in 2011.
JPMorgan Chase & Co. and Evercore Partners Inc. served as financial advisers and Debevoise & Plimpton LLP provided legal advice to the board committee. Goldman Sachs Group Inc. provided financial advice to Dell, while Hogan Lovells US LLP is acting as legal advisor to Dell. Wachtell, Lipton, Rosen & Katz acted as legal adviser to Michael Dell. Bank of America Corp., Barclays Plc, Credit Suisse Group AG and Royal Bank of Canada gave financial advice to Silver Lake, with Simpson Thacher & Bartlett LLP acting as legal counsel.