[ ]
|
Preliminary Proxy Statement
|
[ ]
|
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
|
[ ]
|
Definitive Proxy Statement
|
[X]
|
Definitive Additional Materials
|
[ ]
|
Soliciting Material Pursuant to § 240.14a-12
|
[X]
|
No fee required.
|
[ ]
|
Fee computed on table below per Exchange Act Rule 14a-6(i)(4) and 0-11.
|
·
|
The completion of the $14 Self Tender Offer on May 3, 2013;
|
·
|
The incurrence of $5.2 billion in new senior term loans, the proceeds of which are used to fund the $14 Self Tender Offer;
|
·
|
The sale of both short-term and long-term financing receivables for a total of $4.4 billion net of both short-term and long-term structured financing debt of $1.5 billion for total cash proceeds of $2.9 billion, the proceeds of which are used to fund the $14 Self Tender Offer;
|
·
|
The following items are also used to fund the $14 Self Tender Offer:
|
o
|
$10.4 billion of cash and cash equivalents,
|
o
|
$486 million of short-term investments, and
|
o
|
$2.3 billion of long-term investments;
|
·
|
The repayment of:
|
o
|
$454 million in short-term structured financing receivables, and
|
o
|
$1.0 billion in long-term structured financing receivables; and
|
·
|
The payment of $15.6 billion for:
|
o
|
1.1 billion shares in the proposed $14 Self Tender Offer,
|
o
|
$490 million of break-up and diligence fees,
|
o
|
$200 million in cash taxes paid in connection with repatriating cash from overseas, and
|
o
|
$182 million in financing fees.
|
Pro Forma Condensed Consolidated Statements of Financial Position
|
|||||
May 3, 2013
|
|||||
Actual1
|
Adjustments
|
Pro Forma
|
|||
Cash and cash equivalents
|
$ 10,419
|
$ (5,519)2
|
$ 4,900
|
||
Short-term investments
|
486
|
(486)3
|
̶
|
||
Accounts receivable
|
6,440
|
6,440
|
|||
Short-term financing receivables, net
|
2,991
|
(2,991)4
|
̶
|
||
Inventories, net
|
1,387
|
1,387
|
|||
Other current assets
|
3,936
|
3,936
|
|||
Total current asset
|
25,659
|
16,663
|
|||
Property, plant and equipment, net
|
2,136
|
2,136
|
|||
Long-term investments
|
2,303
|
(2,303)5
|
̶
|
||
Long-term financing receivables, net
|
1,383
|
(1,383)6
|
̶
|
||
Goodwill
|
9,289
|
9,289
|
|||
Purchased intangible assets, net
|
3,176
|
3,176
|
|||
Other non-current assets
|
845
|
845
|
|||
19,132
|
15,446
|
||||
Total assets
|
44,791
|
32,109
|
|||
Short-term debt
|
3,133
|
(454)7
|
2,679
|
||
Accounts payable
|
10,990
|
10,990
|
|||
Accrued and other
|
3,402
|
3,402
|
|||
Short-term deferred revenue
|
4,265
|
4,265
|
|||
Total current liabilities
|
21,790
|
21,336
|
|||
Long-term debt
|
4,115
|
(4,201)8
|
8,316
|
||
Long-term deferred revenue
|
3,963
|
3,963
|
|||
Other non-current liabilities
|
4,163
|
4,163
|
|||
Total liabilities
|
12,241
|
16,442
|
|||
Total Dell stockholders' equity
|
10,739
|
(16,429)9
|
(5,690)10
|
||
Non-controlling interest
|
21
|
21
|
|||
Total stockholders' equity
|
10,760
|
(5,66 9)
|
|||
Total liabilities and equity
|
44,791
|
32,109
|
|||
·
|
The completion of the $14 Self Tender Offer on May 3, 2013;
|
·
|
The incurrence of $5.2 billion in new senior term loans, the proceeds of which are used to fund the $14 Self Tender Offer;
|
·
|
The sale of both short-term and long-term financing receivables for a total of $4.4 billion net of both short-term and long-term structured financing debt of $1.5 billion for total cash proceeds of $2.9 billion, the proceeds of which are used to fund the $14 Self Tender Offer;
|
·
|
The following items are also used to fund the $14 Self Tender Offer:
|
o
|
$10.4 billion of cash and cash equivalents,
|
o
|
$486 million of short-term investments, and
|
o
|
$2.3 billion of long-term investments;
|
·
|
The repayment of:
|
o
|
$454 million in short-term structured financing receivables, and
|
o
|
$1.0 billion in long-term structured financing receivables; and
|
·
|
The payment of $15.6 billion for:
|
o
|
1.1 billion shares in the proposed $14 Self Tender Offer,
|
o
|
$490 million of break-up and diligence fees,
|
o
|
$200 million in cash taxes paid in connection with repatriating cash from overseas, and
|
o
|
$182 million in financing fees.
|
Other Pro Forma Financial Data
|
|||||
May 3, 2013
|
|||||
Actual
|
Pro Forma
|
||||
Cash and cash equivalents, short-term investments and long-term investments
|
13,2081
|
4,900
|
|||
Debt
|
7,2481
|
10,995
|
|||
Net Debt
|
(3,171)
|
6,095
|
|||
EBITDA2
|
3,577
|
3,254
|
|||
Net Debt/EBITDA
|
-1.8x
|
1.9x
|
|||
Reconciliation to non-GAAP financials – Q4 FY13 and Q1 FY14
|
||||
Reconciliation to non-GAAP operating income
|
Q4 FY13
|
Q1 FY14
|
||
GAAP operating income
|
$698
|
$226
|
||
Amortization of intangibles
|
188
|
196
|
||
Severance and facility actions and acquisition related costs
|
68
|
80
|
||
Other1
|
88
|
|||
Non-GAAP operating income – as previously disclosed
|
$954
|
$590
|
||
Vendor Settlements
|
(250)
|
-
|
||
Non-GAAP operating income
|
$704
|
$590
|
||
Reconciliation to non-GAAP EPS - diluted
|
Q4 FY13
|
Q1 FY14
|
||
GAAP EPS – diluted
|
$0.30
|
$0.07
|
||
Non-GAAP adjustments per share
|
0.10
|
0.14
|
||
Non-GAAP EPS – diluted – as previously disclosed
|
$0.40
|
$0.21
|
||
Vendor settlements
|
(0.11)2
|
-
|
||
Non-GAAP EPS - diluted
|
$0.29
|
$0.21
|
Valuation Analysis
|
||||||||
Assumes Only Icahn and Southeastern Do Not Tender
|
||||||||
Total Value to Tendering Shareholders 1
|
||||||||
Assumed NTM P/E Multiple 2
|
5.5x
|
6.0x
|
6.6x
|
7.2x
|
||||
Cash
|
$9.99
|
$9.99
|
$9.99
|
$9.99
|
||||
% of $14 Tender Offer
|
71%
|
71%
|
71%
|
71%
|
||||
Assumed Stock Value
|
$4.57
|
$4.98
|
$5.48
|
$5.98
|
||||
Warrant
|
$1.15
|
$1.37
|
$1.65
|
$1.94
|
||||
Total Value to Tendering Shareholders
|
$15.72
|
$16.35
|
$17.13
|
$17.92
|
||||
% Premium to Michael Dell/Silver Lake Deal
|
15.1%
|
19.8%
|
25.5%
|
31.3%
|
||||
Assumes Only Icahn, Southeastern and Michael Dell Roll Do Not Tender
|
||||||||
Total Value to Tendering Shareholders 1
|
||||||||
Assumed NTM P/E Multiple 2
|
5.5x
|
6.0x
|
6.6x
|
7.2x
|
||||
Cash
|
$12.11
|
$12.11
|
$12.11
|
$12.11
|
||||
% of $14 Tender Offer
|
86%
|
86%
|
86%
|
86%
|
||||
Assumed Stock Value
|
$2.16
|
$2.35
|
$2.59
|
$2.82
|
||||
Warrant
|
$1.15
|
$1.37
|
$1.65
|
$1.94
|
||||
Total Value to Tendering Shareholders
|
$15.42
|
$15.83
|
$16.35
|
$16.88
|
||||
% Premium to Michael Dell/Silver Lake Deal
|
13.0%
|
16.0%
|
19.8%
|
23.6%
|
||||
1
|
Assumes FY’15 Dell earnings pro forma for the Icahn/Southeastern tender of $2.90, as derived in the accompanying Sources of Funding and Self Tender Offer.
|
2
|
NTM P/E multiples of 5.5x, 6.0x, 6.6x (as calculated by the Special Committee to be the unaffected NTM P/E multiple prior to announcement as per Schedule 14A filed with the SEC by Dell on 6/24/13) and 7.2x (most recent Hewlett Packard FY'14 P/E as per Bloomberg as of 7/11/13).
|
Sources of Funding and Self Tender Offer
|
||||||||||||
Sources of Funding 3, 4
|
Self Tender Offer
|
|||||||||||
Millions (Except Per Share Values)
|
Millions (Except Per Share Values)
|
|||||||||||
Cash (Projected as of 7/31/13)
|
13,300
|
Fiscal Year Ending
|
||||||||||
Assumed Minimum Cash
|
4,900
|
January 30, 2015
|
||||||||||
Break-up and Diligence Fees
|
490
|
Non-GAAP Operating Income 5
|
3,300
|
|||||||||
Taxes Paid
|
200
|
Less: Estimated Foregone Dell Financials Services Income 6
|
(250)
|
|||||||||
Bond Issuance Fee
|
182
|
Less: Net Interest Expense 7
|
(556)
|
|||||||||
Total Available Cash
|
7,528
|
Pro Forma Pre-tax Income
|
2,494
|
|||||||||
Taxes
|
549
|
|||||||||||
Short-term Financing Receivables
|
2,991
|
Pro Forma Net Income
|
1,946
|
|||||||||
Long-term Financing Receivables
|
1,383
|
|||||||||||
Long-term Structured Financing Debt
|
(999)
|
Shares Outstanding 8
|
1,788
|
|||||||||
Short-term Structured Financing Debt
|
(454)
|
Shares Repurchased in Self Tender
|
1,118
|
|||||||||
Total Cash Proceeds from Sale of Receivables
|
2,921
|
Pro Forma Shares Outstanding
|
670
|
|||||||||
New Senior Term Loans
|
5,200
|
Pro Forma FY'15 EPS
|
$2.90
|
|||||||||
Total Proceeds
|
15,649
|
|||||||||||
Self Tender Price
|
$14.00
|
|||||||||||
Shares Repurchased
|
1,118
|
|||||||||||
3
|
Assumes, as per Schedule 14A filed with the SEC by Dell on 6/24/13 $13.3 billion in cash as of 7/31/13.
|
4
|
Assumes, as per Schedule 14A filed by Icahn with the SEC on 7/1/13, total cash available for repurchases of $15.649 billion to repurchase 1.118 billion shares at $14. Total cash available derived from the incurrence of $5.2 billion in new senior term loans, the sale of short-term and long-term financing receivables net of both short-term and long-term structured financing debt for total cash proceeds of $2.9 billion, $10.4 billion of cash and cash equivalents, $486 million of short-term investments, and $2.3 billion of long-term investments (as per Form 10-Q filed with the SEC by Dell on 6/12/13), $490 million of break-up and diligence fees, $200 million of cash taxes paid in connection with repatriating cash from overseas, and $182 million in financing fees. Assumed minimum cash of $6.4 billion as per Schedule 14A filed with the SEC by Dell on 6/5/13, less $1.5 billion equal to undrawn revolver at closing as per Schedule 14A filed with the SEC by Dell on 6/24/13.
|
5
|
Assumes, as per Schedule 14A filed with the SEC by Dell on 6/13/13 $3.3 billion in operating income in the BCG Base Case for fiscal year ending January 30, 2015.
|
6
|
Assumes Dell Financial Services begins to rebuild receivables balance to only generate a deficit of $250 million of income for fiscal year ending January 30, 2015 as compared to the $323 million loss projected by the Special Committee for Dell Financial Services for fiscal year ending January 31, 2014 as per Schedule 14A filed by Dell on 6/5/13.
|
7
|
Assumes 5.5% blended cost of debt and 0.5% interest income.
|
8
|
Assumes, as per Schedule 14A filed with the SEC by Dell on 6/24/13 1.788 billion shares outstanding as of 7/31/13.
|
Warrant Valuation Analysis
|
|||||||||
Black-Scholes Calculations 8, 9
|
|||||||||
Inputs:
|
Inputs: |
|
|||||||
Assumed Stock Value (S)
|
$15.97
|
Assumed Stock Value (S)
|
$17.42
|
||||||
Strike Price (X) 10
|
$20.00
|
Strike Price (X) 10
|
$20.00
|
||||||
Volatility (s) 11
|
37%
|
Volatility (s) 11
|
37%
|
||||||
Risk-free Rate 12
|
2%
|
Risk-free Rate 12
|
2%
|
||||||
Time to expiration (T) (yrs) 10
|
7.0
|
Time to expiration (T) (yrs) 10
|
7.0
|
||||||
Fraction of Warrant Granted Per Share
|
0.25
|
Fraction of Warrant Granted Per Share
|
0.25
|
||||||
# of Options (000)
|
279,446
|
# of Options (000)
|
279,446
|
||||||
# Shares Outstanding (Projected as of 7/31/13) (000)
|
1,788,000
|
# Shares Outstanding (Projected as of 7/31/13) (000)
|
1,788,000
|
||||||
Output:
|
Output: |
|
|||||||
Adjusted S (Dilution)
|
$14.43
|
Adjusted V (Dilution)
|
$15.81
|
||||||
D1
|
0.30
|
D1
|
0.40
|
||||||
D2
|
(0.68)
|
D2
|
(0.58)
|
||||||
N(D1)
|
0.62
|
N(D1)
|
0.65
|
||||||
N(D2)
|
0.25
|
N(D2)
|
0.28
|
||||||
Value of Warrant
|
$4.61
|
Value of Warrant
|
$5.49
|
||||||
Inputs:
|
Inputs:
|
||||||||
Assumed Stock Value (S)
|
$19.16
|
Assumed Stock Value (S)
|
$20.90
|
||||||
Strike Price (X) 10
|
$20.00
|
Strike Price (X) 10
|
$20.00
|
||||||
Volatility (s) 11
|
37%
|
Volatility (s) 11
|
37%
|
||||||
Risk-free Rate 12
|
2%
|
Risk-free Rate 12
|
2%
|
||||||
Time to expiration (T) (yrs) 10
|
7.0
|
Time to expiration (T) (yrs) 10
|
7.0
|
||||||
Fraction of Warrant Granted Per Share
|
0.25
|
Fraction of Warrant Granted Per Share
|
0.25
|
||||||
# of Options (000)
|
279,446
|
# of Options (000)
|
279,446
|
||||||
# Shares Outstanding (Projected as of 7/31/13) (000)
|
1,788,000
|
# Shares Outstanding (Projected as of 7/31/13) (000)
|
1,788,000
|
||||||
Output:
|
Output: |
|
|||||||
Adjusted V (Dilution)
|
$17.46
|
Adjusted V (Dilution)
|
$19.13
|
||||||
D1
|
0.50
|
D1
|
0.59
|
||||||
D2
|
(0.48)
|
D2
|
(0.39)
|
||||||
N(D1)
|
0.69
|
N(D1)
|
0.72
|
||||||
N(D2)
|
0.32
|
N(D2)
|
0.35
|
||||||
Value of Warrant
|
$6.60
|
Value of Warrant
|
$7.78
|
||||||
Assumed NTM P/E Multiple 2
|
5.5x
|
6.0x
|
6.6x
|
7.2x
|
|||||
Pro Forma FY'15 EPS
|
$2.90
|
$2.90
|
$2.90
|
$2.90
|
|||||
Assumed Stock Value
|
$15.97
|
$17.42
|
$19.16
|
$20.90
|
|||||
Value of Warrant
|
$4.61
|
$5.49
|
$6.60
|
$7.78
|
|||||
0.25 Warrants Issued Per Share Repurchased
|
0.25
|
0.25
|
0.25
|
0.25
|
|||||
Value of 0.25 Warrant Per Share Repurchased
|
$1.15
|
$1.37
|
$1.65
|
$1.94
|
|||||
2
|
NTM P/E multiples of 5.5x, 6.0x, 6.6x (as calculated by the Special Committee to be the unaffected NTM P/E multiple prior to announcement as per Schedule 14A filed with the SEC by Dell on 6/24/13) and 7.2x (most recent Hewlett Packard FY'14 P/E as per Bloomberg as of 7/11/13).
|
8
|
Warrants valued using Black-Scholes model. Valuation assumes dilution.
|
9
|
Assumes 1.118 billion shares are tendered, shareholders who tender will receive 0.25 of a warrant per purchased tendered share.
|
10
|
Assumes a 7 year warrant with a $20 strike price.
|
11
|
Assumes 37% volatility, as per Form 10-K filed with the SEC by Dell on 3/12/13.
|
12
|
Risk-free rate assumes the U.S. Generic Government 7 Year Yield (USGG7YR) as per Bloomberg on 7/11/13.
|
·
|
The completion of the $14 Self Tender Offer on the first day of the period presented;
|
·
|
The incurrence of $5.2 billion in new senior term loans, the proceeds of which are used to fund the $14 Self Tender Offer;
|
·
|
The sale of both short-term and long-term financing receivables for a total of $4.4 billion net of both short-term and long-term structured financing debt of $1.5 billion for total cash proceeds of $2.9 billion, the proceeds of which are used to fund the $14 Self Tender Offer;
|
·
|
A reduction of $323 million in operating income as a result of the sale of financing receivables;
|
·
|
The following items are also used to fund the $14 Self Tender Offer:
|
o
|
$10.4 billion of cash and cash equivalents,
|
o
|
$486 million of short-term investments, and
|
o
|
$2.3 billion of long-term investments;
|
·
|
The repayment of:
|
o
|
$454 million in short-term structured financing receivables, and
|
o
|
$1.0 billion in long-term structured financing receivables; and
|
·
|
The payment of $15.6 billion for:
|
o
|
1.1 billion shares in the proposed $14 Self Tender Offer,
|
o
|
$490 million of break-up and diligence fees,
|
o
|
$200 million in cash taxes paid in connection with repatriating cash from overseas, and
|
o
|
$182 million in financing fees.
|
Pro Forma Condensed Consolidated Statements of Income
|
|||||
(in millions, except per share amounts)
|
Fiscal Year Ended February 1, 2013
|
||||
Actual1
|
Adjustments
|
Pro Forma
|
|||
Net revenue:
|
|||||
Products
|
$ 44,744
|
-
|
$ 44,744
|
||
Services, including software related
|
12,196
|
-
|
12,196
|
||
Total net revenue
|
56,940
|
-
|
56,940
|
||
Cost of net revenue:
|
|||||
Products
|
36,683
|
-
|
36,683
|
||
Services, including software related
|
8,071
|
-
|
8,071
|
||
Total cost of net revenue
|
44,754
|
-
|
44,754
|
||
Gross margin
|
12,186
|
-
|
12,186
|
||
Operating expenses:
|
|||||
Selling, general and administrative
|
8,102
|
-
|
8,102
|
||
Research, development, and engineering
|
1,072
|
-
|
1,072
|
||
Total operating expenses
|
9,174
|
-
|
9,174
|
||
Operating income
|
3,012
|
(323)2
|
2,689
|
||
Interest and other, net
|
(171)
|
(385)
|
(556)3
|
||
Income before income taxes
|
2,841
|
(708)
|
2,133
|
||
Income tax provision4
|
469
|
(117)
|
352
|
||
Net income
|
2,372
|
(591)
|
1,781
|
||
Earnings per share:
|
|||||
Basic
|
$ 1.36
|
$ 1.48
|
$ 2.84
|
||
Diluted
|
$ 1.35
|
$ 1.45
|
$ 2.80
|
||
Weighted-average shares outstanding:
|
|||||
Basic
|
1,745
|
(1,118)5
|
627
|
||
Diluted
|
1,755
|
(1,118)5
|
637
|
Pro Forma Condensed Consolidated Statements of Income
|
|||||
(in millions, except per share amounts)
|
Three Months Ended May 3, 2013
|
||||
Actual6
|
Adjustments
|
Pro Forma
|
|||
Net revenue:
|
|||||
Products
|
$ 10,902
|
-
|
$ 10,902
|
||
Services, including software related
|
3,172
|
-
|
3,172
|
||
Total net revenue
|
14,074
|
-
|
14,074
|
||
Cost of net revenue:
|
|||||
Products
|
9,244
|
-
|
9,244
|
||
Services, including software related
|
2,083
|
-
|
2,083
|
||
Total cost of net revenue
|
11,327
|
-
|
11,327
|
||
Gross margin
|
2,747
|
-
|
2,747
|
||
Operating expenses:
|
|||||
Selling, general and administrative
|
2,208
|
-
|
2,208
|
||
Research, development, and engineering
|
313
|
-
|
313
|
||
Total operating expenses
|
2,521
|
-
|
2,521
|
||
Operating income
|
226
|
(81)7
|
145
|
||
Interest and other, net
|
(68)
|
(71)
|
(139)3
|
||
Income before income taxes
|
158
|
(152)
|
6
|
||
Income tax provision8
|
28
|
(27)
|
1
|
||
Net income
|
130
|
(125)
|
5
|
||
Earnings per share:
|
|||||
Basic
|
$ 0.07
|
$ (0.07)
|
$ 0.01
|
||
Diluted
|
$ 0.07
|
$ (0.07)
|
$ 0.01
|
||
Weighted-average shares outstanding:
|
|||||
Basic
|
1,748
|
(1,118)5
|
630
|
||
Diluted
|
1,761
|
(1,118)5
|
643
|