WSJournal. Dell to Sell Itself for $24.4 Billion

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Dell Inc. DELL +1.13% on Tuesday said it reached a deal to take itself private, in a $24.4 billion buyout that marks an unofficial end to the era when a handful of young entrepreneurs made PCs the dominant computing device.

Dell founder and chief executive Michael Dell.

The deal "immediately delivers value to shareholders," Brian Gladden, Dell's chief financial officer, said in a brief interview. He said that while Dell had made progress in its effort to turn itself around, "we do recognize that it will take more time" and that the computer maker can more easily make the necessary changes without the scrutiny and limitations of being a public company.

The buyout reflects the combined heft of founder Michael Dell , software titan Microsoft Corp., MSFT +0.20% private-equity firm Silver Lake Partners and a handful of investment banks.

Mr. Dell—along with Silver Lake—will offer Dell's holders a per-share price of $13.65, a 25% premium above the level shares traded last month ahead of media reports about a potential deal.

The transaction will be financed through a combination of cash and equity contributed by Mr. Dell, cash funded by investment funds affiliated with Silver Lake, cash invested by MSD Capital LP, a $2 billion loan from Microsoft, rollover of existing debt, as well as debt financing that has been committed by Bank of America Merrill Lynch, Barclays , BARC.LN +1.29% Credit Suisse CSGN.VX +2.33% and RBC Capital Markets, and cash on hand.

Mr. Dell first approached the board of directors about a buyout in August, according to the company. "The board went through a very disciplined and structured process," Mr. Gladden said.

The merger agreement provides for a "go-shop" period—initially for 45 days—during which Dell can actively solicit alternative proposals. The buyout group would get a termination fee of only $180 million if Dell strikes a deal with a competing bidder during the go-shop period. For a bid outside of the go-shop period, the buyout group would get a $450 million fee.

Some stockholders aren't happy about the deal. "I've not heard anyone say they like the deal or that this is a great price," said David Fleer, a portfolio manager at Bristlecone Value Partners LLC, which owned nearly 84,000 Dell shares as of Sept. 30. He said the current offer undervalues the company, and that he "would be hopeful there would be meaningful resistance." Still, Mr. Fleer said he hasn't made a definitive decision as to how his firm will vote on the deal.

James Rosenwald, managing partner at Dalton Investments LLC, said he believes Dell shareholders could do better if the company borrowed money and paid shareholders a large one-time dividend. The hedge fund reported owning 1.1 million Dell shares as of Sept. 30.

Analysts at ISI Group, an investment research firm, said in a note Tuesday that the deal's price may be "perceived as cheap" and that "the deal could face some shareholder resistance at any price under $15 a share." But the analysts also said the deal makes sense for Dell and added they see no other bidders emerging in the go-shop period.

Less than two hours after the deal was announced, rival Hewlett-Packard Co. HPQ +2.66% was quick to criticize the takeover, saying the buyout would add uncertainty for customers and limit Dell's ability to invest in new products.

"Leveraged buyouts tend to leave existing customers and innovation at the curb," H-P said in a press release. "We believe Dell's customers will now be eager to explore alternatives, and H-P plans to take full advantage of that opportunity."

Dell will continue to be based in Round Rock, Texas. The deal is expected to close in the second quarter of Dell's 2014 fiscal year.

Mr. Dell, who owns about 14% of Dell's shares, will continue to lead the company as chairman and chief executive. He will continue to hold a significant stake in Dell by contributing his shares of Dell to the new company, as well as making a substantial additional cash investment.

Dell was once the world's largest PC maker and boasted a market capitalization above $100 billion. But it largely has been sidelined as tablets and smartphones became the more popular devices and PC sales shrank.

After Mr. Dell approached Dell's board about exploring a buyout last year, Dell formed a special committee made up of four members to advise on strategic alternatives, said people familiar with the process.

The special committee authorized bankers at J.P. Morgan Chase JPM +2.33% & Co. to pursue the leveraged-buyout alternative and hired management consultants to study other options for Dell, people familiar with the matter said. Those options included remaining an independent public company and separating the PC business from the higher-margin software and services operations, as well as exploring whether there were other companies that might want to buy Dell.

But none of the other options ever emerged as a serious alternative to a buyout, a person close to the board said. "There aren't that many moves" a company like Dell can make, this person said.

Meanwhile, the board never heard a concrete plan from the buyout group. Mr. Dell in the fall addressed the board at a regularly scheduled meeting and talked about cost-saving steps, investing more in Dell's sales force and moving into some markets where the short-term margins aren't great. But he didn't go into much detail, the person close to the board said.