Dell Technologies Inc. · NYSE:DELL
Dell Technologies — Merger or Acquisition (July 2013)
45 slides from Dell Technologies's merger presentation, Jul 8, 2013
Slide 1: Schedule 14A Proxy Statement - Dell Inc.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant x Filed by a party other than the Registrant ¨ Check the appropriate box: ¨ Preliminary Proxy
Slide 2: Date Filed
(4) Date Filed:
Slide 3: Explanatory Note
Explanatory Note Members of the Special Committee of the Board of Directors of Dell Inc. continue to meet with investors regarding the proposed transaction with affiliates of Michael Dell and Silver Lake Partners. In connection with those meetings, presentation materials previously provided to inves
Slide 4: Special Committee Investor Presentation, July 2013
DEL July 2013 LS PE C IALC O M M I TT E E I N V E S T O R PR E S E N TAT I O N
Slide 5: Presentation team
Presentation Alex Laura Ken Debevoise J.P. Management 1Proxy Morgan Duberstein, Mandl Conigliaro, MacKenzie &Financial (Chairman), to Boston Plimpton Dell’s Chairman Retired Partners Consulting investors advisors LLP Former Partner & solicitor Legal CEO Evercore Group President, of counsel ofGoldman
Slide 6: Agenda
Transaction process 3 Perspectives on Dell today 12 Overview of financial forecasts 22 Evaluation of strategic alternatives 30 2Agenda
Slide 7: Process: Special Committee
Process Alex President Laura Retired Co-Director Covered Janet SVP EVP Investment Ken Chairman Director Other Lead Chairman, Former 3The Special Duberstein &of Mandl Director, Clark experience Conigliaro CFO White Santa Partner President, director Presiding led of computer &of &Governance Infoblox,
Slide 8: Independent directors
Independent James Partner, McKinsey Product Lead Donald Chairman CEO National Current William Co-Chairman Congressman, Gerard President, MD, Member Klaus Owner Vice CEO, Shantanu President Key Co-founder, Apple Ross Director Other Founder, 41Chairman, product Chairman Philips Perot Independent of Th
Slide 9: Comprehensive process delivers superior value
Going All Comprehensive Shareholder Shifts 5Avoids cash all private high offer business friendly risk at delivers range aofsignificant, and a process levered of transaction highest alternatives and recap certain value terms risks and for evaluated premium to delivers Dell’s ensure buyershareholders
Slide 10: Rigorous negotiations
$13.65 37% Negotiations Rigorous In Blackstone –Icahn All Increasingly Enterprise Transformation 61Transaction Blackstone Icahn On Premiums total, cash premium July and per did 21 transaction process 1st, Southeastern segment share strategic and not highlights transfers based negative resulted termi
Slide 11: Rigorous, competitive process
Process Rigorous Established Highly The Considered Retained Special Michael Transaction Prior Evercore Aggressive Blackstone Icahn 71On July Special to and competitive Committee’s signing, was 1st, Unaffiliated Dell BCG retained review Southeastern and go-shop, broad favorable requires Committee Ica
Slide 12: Progression of bids
$4 billion Progression Represents Initial 10/23/12 Special 8/20/12 $11.22 $12.00—$13.00) $13.65 $12.90 5/9/13 12/4/12 12/11-12/23/12 3/22/13 Sponsor Aug 821Dell share Sept bids 6/18/13 $13.60 2/5/13 Late Represents BOct C in 10/22/12 declines enters $12.16 Silver of additional Oct Nov $12.70 $13.50
Slide 13: Deteriorating Street estimates since announcement
… ?despite Progression Street 8/21/12 $2.02 Transaction $1.79 $1.81 $1.67 $1.59 $1.66 % $1.54 $1.00 Aug 50% 9Source: since Sept decrease 2/5/13 $1.78 $1.67 $1.57 $1.00 consensus ThomsonOne; 11/15/12 Oct Aug deteriorating announced of (Current Nov in 2012: FY14 FY14 estimates 2/19/13 Dec (50%) Street
Slide 14: Attractive $13.65 per share premium
Attractive $13.65/share 63% 77% Significantly Enterprise 7.0x annualized 1Q 6.0x Offer (Final Board 5.0x 4.0x 3.3x4 EBITDA): (Consensus Jun-12 2.0x 3.0x average: 321Source: 410 FY14): Actual (Last 6.7x2 5.4x3 Dell premium multiple FY14 Case): Jul-12 Company premium quarter value (LQA) period Based R
Slide 15: Agenda
Transaction process 3 Perspectives on Dell today 12 Overview of financial forecasts 22 Evaluation of strategic alternatives 30 Agenda 11
Slide 16: Dell's transition: Core Dell and New Dell
Transition Characteristics End Strong Fund Enterprise Solutions “New Services 2ą(Solutions) 12“Core User & Dell“2 brand Dell” Pull-through “New inorganically Declining growth to Faster “New Expanding includes Dell” Dell growth Dell” strategy demand includes revenue mobility, margins Outpace depends
Slide 17: Dell revenue and operating income by segment
Dell Revenue $16,000 $14,4175 $2,109 $12,000 $370 $8,000 $224 $4,000 $3,093 $136 $0 ($85) Q1 Services ~15% Large Represents Headwinds ESG Commoditization Emerging Weak EUC 1Source: third-party ~$343mm 13Services $295 FY14 Q1 and Services1 EUC2 ESG3 margins Software4 position portion ofESG3 Services1
Slide 18: Support and Deployment services
Primarily Support In Does However, 14 EUC, ESG, drive and growth unit extended pressures unit Deployment sales sales of growth Cloud warranty, Support (although –represents isisan an tied and under installation important attractive atto Deployment lower unit secular a challenge sales margins) busine
Slide 19: Returns on acquisitions
Returns Significant Over Sales A Current As 15number the$13bn force environment returns foroffuture integration Dell’s spent acquisitions areintegration on acquisition lagging continues acquisitions benefits have theand program to required 15% and evolve investment since cross-selling IRR remain FY0
Slide 20: New Dell faces scale challenges
“New Key Modest Remains Weak Risk Scale Storage 7.2% Data Hitachi 8.8% HP 33.4% Systems 9.6% (Gartner: R&D ($ 12% $4,523 $5,488 $6,302 $3,399 5%3 $2,560 $1,072 2% Networking 1.9% Huawei 2.9% Lucent Alcatel- 2.6% Juniper 2.1% Brocade 2.0% 9.1% Server Oracle Others 3.0% IBM Dell 4.5% Cisco 3.6% Fujits
Slide 21: PC market outlook
Recent On “…the “Our 38% 550 (mm) 500 8.4% shipme 450 nts 2005-11A ldwide Wor 1.7% Other (~1.5%)2 300 Morgan Dec Barclays 250 ‘09 PC 321Source: 17 June market shipments ‘10 CAGR Gartner Jun ‘12 350 decrease tablet 7.4% sources: lack 400 industry 4.3% ‘11 IDC, ‘13 Stanley1 Represents 28, PCs (Mar CAG
Slide 22: PC profit pools shifting
Tablets ~30% PC FY12 ~(9%) Dell strength weakness Total Dell’s Source: 1Note: 18Profit profit Tablets: PCs: Std ~4% profit Represents FY17 CAGR build-to-order CAGR expected pool BCG / pools Value: Prem: CAGR $38bn pool ~(7%) represents $8bn shifting $34bn =$26bn $4bn to Dell’s $38bn $30bn CAGR conti
Slide 23: Transformation risks and cash flow
Revenue Provides Cash Product –Sales Cloud The “Core “New Dell’s ¹Source: Includes Largest speed flow force Dell” Dell,” rate represents BCG integration absorbs procurement customers desktop, of has integration business operating and is drives including transformation 19 fueled critical “New asignif
Slide 24: PC exposure and unaffected P/E multiple
PCUnaffected $40 Dell’s $37 Dell Source: FY13 FY08 0.0x 5.0x 10.0x 15.0x 20.0x 21Note: Prior 20PCrevenue1 exposure $30 PC revenue to Market NTM announcement, Company revenue1 $20 P/E $10 will ($bn) multiple data includes multiple likely Dell filings; from andshown desktops NTM next Dell’s continue 1
Slide 25: Agenda
Transactionofofprocess Agenda Perspectives Evolution Evaluation 21 on financial strategic Dell3today forecasts alternatives 12 22 30
Slide 26: Deterioration in key financial metrics
Continued Key Revenue LQA $62.1 $56.9 $56.3 Final EPS1 $0.84 $1.25 $1.58 $2.10 Operating $5.1 $2.4 $3.7 Free FY12 $3.0 $5.2 % 2ąSource: 22 Excludes Based mgn: metrics Final cash 1Q FY14 $56.5 FY13 Company 8.2% 8.4% on FY14 flow income1 FY14 deterioration one-time $0.2bn Board ($5.2% 6.4% inBoard bil
Slide 27: Forecasting and quarterly results
Forecasting Quarterly FY12 Revenue Results Board Revenue: EPS: 1Source: 23Excludes Dell FY13 plan vs. Company Revenue Dell revenue has ¹one-time has FY14 ¹ ¹missed has EPS been filings; and missed Q1 EPS $250mm poor 4Q2 EPS of Dell Q3 7the inperformance out aQ4 last gain challenging management ofQ1
Slide 28: Internal forecasts revised downwards
3Internal Revenue July 57.5 9/21 (9%) FY13 Preliminary (1/18/13) (1%) Final (3/13/13) 1% Cumulative Source: Excludes Based 24weeks (19%) Plan 4.0 Case (23%) (9% FY14 Actual¹ FY14 onCompany forecasts after 1.70 Op. one-time $0.2bn $63.0 ~4 ~2 )~2 (21%) (7%) Board change FY14 (25%) mo. Inc. 59.9 mo. a
Slide 29: BCG scope and cost savings
BCG During Full Scope Future Prospects Strategy –Financial 1Source: Two 25Categories Savings access retained of cost of the BCG Based of BCG the cases for assumed fall savings each toof PC Dell’s Dell towork of on to costs business evaluate business 2012, model Dell senior realization phased transfo
Slide 30: BCG business transformation findings
Slow enterprise ?Combined Tablets Other Lower BCG Organizational Simplification Market Source: 26 validated created identified Dell revenue growing shift performance BCG business market to a and “base de-layering value business and opportunities transformation rapidly labor revenue operating segment
Slide 31: Forecasted BCG cost savings vs. Street
Forecasted $5.7 BCG Wall Implies 10% $4.0 Significant $3.4 $3.0 $2.5 FY13E $2.0 $2.4 Given 21Source: 27 aspirational $3.9 $3.2 bottom $3.0 BCG vs. Street “75% evaluated Base 25% 75% aggressive FY14E an Dell 4% Q1 $3.8 $2.9 75% Case unrealistic Case operating portion Consensus Case” FY14 today2 line
Slide 32: Q1 FY14 results and key observations
Margin Non-GAAP Revenue ESG BRIC down % Operating respectively Gross Diluted flow Free 1Source: 28 Variance Revenue growth margin cash down revenue 17% profit margin and pressure EPS Dell Free $14.1 flow1 20.6% (YoY) income China and 35% Variance above Q1 29. $0.21 management, cash up percentage $13
Slide 33: Agenda
Transactionofofprocess Agenda Perspectives Evolution Evaluation 29 on financial strategic Dell3today forecasts alternatives 12 22 30
Slide 34: Leveraged recapitalization benefits and challenges
Full Benefits Levered—Significantly Utilize Enhance -+ 30Potential Significant Ability Delivers Dividend Remove Eliminate range cash Challenges dividend toof competitive revenue upfront payers focus long-term flow time strategic to required on dividend cash rewarded and increase—Constrained core alt
Slide 35: Other strategic alternatives
Full Benefits +Grow Transform- acquisitions +Opportunity +Immediate -Sale +De-risks strategic We 31Transaction Views thoroughly range to Enterprise, validated Challenges standalone ofareas High value strategic size toevaluated improve ative by interloper likely creation Software, fact plan alternati
Slide 36: Icahn and Southeastern proposal summary
Summary Overview Implies Icahn Southeastern Together, Management Total $7.5bn $2.9bn $5.2bn 1To 2have Rahul 32Southeastern Icahn’s elect anet asks and purchased Merchant, combined Dell net secured ~$10.00 afunding nominations they slate of Southeastern that financing cash Icahn (~50% team still sold
Slide 37: Leveraged recap elevates risk
Leveraged Elevated Elevates FY14E Plan Potential Few Significantly Weak Dell Dramatically 33 will precedents Deteriorating financial operating Dell’s risks remain adverse recap weaker elevated due position risk –largely considerations employee, income particularly to cash profile financial leverage
Slide 38: Highly leveraged recapitalization analysis
Highly June Total vs. Cash No Stub leverage strongly Break-even Final Few LQA None Pro Gross Unrealistic18th available cash leveraged $9.94 54321transaction public forma 6 Break-even 34Final /large-cap available Final LQA July precedents equity Q1 FY14 in leverage debt tech Cash capitalized levels F
Slide 39: Icahn and Southeastern inconsistent positions
March May June To Icahn Southeastern On How The 35 match February Special 9th 18th can and has 22nd letter: their $13.65 been failed letter: Southeastern Committee letter: 8th, has rhetoric inconsistent $12.00 to $14.00 in openly Southeastern provide $15.00 cash, per and concepts stands per opposed
Slide 40: Highfields precedent: Clear Channel transaction
Highfields, In Transaction Stock Clear 7/30/08: 14% 1/29/07: 1/1/07 $0 (75%) Similarities Founder Declining Leverage Small Source: 36 response Channel price float 4/20/08 Company The /Clear levels sponsor growth and holder performance to completed acquisition dissident Dell highlights Communications
Slide 41: Dramatic price underperformance after votes down
Dramatic Price Announce Target TGC Dynegy VaxGen Cablevision Randolph Lear Eddie Cornell Corning Mean Median Average Source: Note: 37 American Industries performance Includes (17.4%) Bauer Acquirer stock Companies FactSet, (13.7%) Blackstone OXiGENE Natural 1-year underperformance Bank Voted Systems
Slide 42: Substantial downside risk absent transaction
Substantial Assuming $13.65 Silver $5.88 $6.95 $8.72 EPS: 1Source: 38 $1.25 Lake represents 57% Company Assumes HP’s downside $1.00 /premium Final CY13E $0.84 substantial HP’s filings, FY14 risk 96% CY13E P/E1 Wall FactSet; topremium Dell premium Street P/E shareholders Market multiple 132% LQA to i
Slide 43: Conclusion: Comprehensive process delivers highest value
Conclusion: All Comprehensive Shareholder Highest Shifts Avoids 39 cash all high price offer business friendly transaction risk available at range aofsignificant, and a process levered of transaction following delivers alternatives and recap certain highest terms exhaustive risks and evaluated premi
Slide 44: Forward-looking statements
Forward-looking Any statements safe occurrence for transaction; attention business Actual anticipate obligation those heading 10-Q 40 the harbor statements and described proposed results “Item generally. from 8-K that to containing of provisions (3) do any may filed subsequent 1A—Risk the the in so.
Slide 45: Additional information
Additional In statement or Investors Company’s The investor_relations@dell.com. Company the amended 41 connection incorporated proposed other Company relevant with will and ininformation website favor merger, with be athe and by form able documents filing of reference its the atthe and of to directo