Dell Board Said to Have Considered Breakup Before Pursuing LBOJeffrey McCracken, Serena Saitto and Matthew Monks
Dell Inc.’s directors considered breaking the company in two before deciding to go ahead with the $24.4 billion buyout announced today, according to people familiar with the matter.
Dell’s board worked with Boston Consulting Group Inc. to examine a breakup as an alternative to a buyout pitched by founder Michael Dell last year, said the people, who asked not to be named because the matter was private. The move would have split the personal-computer business from one focused on data-center hardware and software, as well as corporate computer products, they said.
Senior Dell executives took part in the discussions with Boston Consulting to review that option, said one of these people. The board and its advisers at JPMorgan Chase & Co. also explored a dividend recapitalization, where Dell would take on debt to help pay for a special dividend, as a way to boost shareholder value, said two of the people. The board decided a buyout of the entire company was the best deal for investors, they said.
PCs account for about about half of Dell’s revenue, and that plus PC software, printers and monitors makes up about 70 percent. Dell, the third-largest PC maker in the world, is going private in an LBO led by its founder and Silver Lake Management LLC, the biggest computer takeover in more than a decade.
Alexandra Corriveau, a spokeswoman for Boston Consulting, declined to comment on its work with companies. David Frink, a spokesman with Dell, declined to comment.
Dell, which once led the PC market, is now No. 3 behind Hewlett-Packard Co. and Lenovo Group Ltd. in an industry that’s in decline as consumers and corporations shift toward mobile machines and computing delivered over the Internet.
A split would have also allowed Dell to direct spending toward its future, investing in its more profitable software, services and data-networking businesses, without the cost of retail distribution. It’s a strategy that worked for International Business Machines Corp., which has focused on software and services since selling its PC business to Lenovo in 2005.
Dell’s founder, who also is the chief executive officer, approached his board in August 2012 about taking the company private, according to a statement today. The directors later worked with a “leading management consulting firm” to analyze Dell’s options as a public company.
Dell later engaged Evercore Partners Inc. to find other options, according to the statement. Evercore also is working on finding other bids as part of Dell’s go-shop process, where a company solicits competing offers even though it already has a firm bid to ensure that shareholders get the best deal.