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GOING PRIVATE

The repurchasing of all of a company's outstanding stock by employees or a privat

As a result of such an initiative, the company stops being publicly traded

Companies might want to go private in order to restructure their businesses (when tprocess might affect their stock prices poorly in the short run)

Sometimes, the company might have to take onsignificant debt to finance the change in ownership structure.

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LEVERAGED BUYOUTS (LBO)

The acquisition of another company using a significant amount of borrowedmoney (bonds or loans) to meet the cost of acquisition.

Collateral - The assets of the company being acquired in addition to the assetof the acquiring company.

Purpose -to allow companies to make large acquisitions without having tocommit a lot of capital.

Transaction structure:

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STEPS IN LBO ANALYSIS

Develop operating assumptions and projections for the standalone company to arrive at EBflow available for debt repayment over the investment horizon (typically 3 to 7 years).

Determine key leverage levels and capital structure (senior and subordinated debt, mezzanetc.) that result in realistic financial coverage and credit statistics

Estimate the multiple at which the sponsor is expected to exit the investment (should gene

to the entry multiple).Calculate equity returns (IRRs) to the financial sponsor and sensitize the results to a range o

exit multiples, as well as investment horizons.

Solve for the price that can be paid to meet the above parameters (alternatively, if the prifor achievable returns).

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DELL-THE TIMELINE

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WHY THIS CHANGE IN STRUCTURE?

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Falling PC market

With the start of 21stcentury the market started shrinking and was furtherbadly effected with emergence of tablets, smart phones and other lightedevices.

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FALLING REVENUE AND MARGINS

Revenue of by 7% betwe

Operating In

income dec12% and 20% Net cash flo

fell from US$to US$ 3.3 bi

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SHRINKING MARKET CAPITALIZATION

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Other Reasons

Failure in tablet business: The company came up with Streak 5 in 2010which failed to please consumer and was discontinued in Aug 2011.

Going to cloud: Being public made it hard and risky for Dell to expand incloud business. The Dell could easily expand in cloud business withouthaving to deal with objections from other investors.

Going private would help Dell cut various cost of running a publiccompany, save it from private investors scrutiny providing it more flexibilityto operate in a low margin PC business.

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THE DEAL

Michael Dell partnered with Silver Lake inmake Dell private

They offered $13.65 pershare to buy out thecompany. They valued

Dell at $24.4 billion out ofwhich Mr. Dell share was

15.6%.

Mr. Dell invested his 14%

share worth 3.8 billion andoffshore cash. Silver Lakepitches $ 1 billion and Dell

supplier Microsoft provided$2 billion. Rest $16.8 billionraised from other sources.

Carl Icahn aSoutheasterManagemeopposed th

The sharehothe final bid

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