March 28, 2024

DealBook: Michael Dell’s Empire in a Buyout Spotlight

Dell's founder, Michael Dell, at a technology conference in 2010.Justin Sullivan/Getty ImagesDell’s founder, Michael Dell, at a technology conference in 2010.

The computer empire of Michael S. Dell spreads across a campus of low-slung buildings in Round Rock, Tex.

But his financial empire — estimated at $16 billion — occupies the 21st floor of a dark glass skyscraper on Fifth Avenue in Manhattan.

It is there that MSD Capital, started by Mr. Dell 15 years ago to manage his fortune, has quietly built a reputation as one of the smartest investors on Wall Street. By amassing a prodigious portfolio of stocks, companies, real estate and timberland, Mr. Dell has reduced his exposure to the volatile technology sector and branched out into businesses as diverse as dentistry and landscaping.

Now, Mr. Dell is on the verge of making one of the biggest investments of his life. The 47-year-old billionaire and his private equity backers are locked in talks to acquire Dell, the company he started with $1,000 as a teenager three decades ago, in a leveraged buyout worth more than $20 billion. MSD could play a role in the Dell takeover, according to people briefed on the deal.

The private equity firm Silver Lake has been in negotiations to join with Mr. Dell on a transaction, along with other potential partners like wealthy Asian investors or foreign funds. Mr. Dell would be expected to roll his nearly 16 percent ownership of the company into the buyout, a stake valued at about $3.5 billion. He could also contribute additional personal money as part of the buyout.

That money is managed by MSD, among the more prominent so-called family offices that are set up to handle the personal investments of the wealthy. Others with large family offices include Bill Gates, whose Microsoft wealth financed the firm Cascade Investment, and New York’s mayor, Michael R. Bloomberg, who set up his firm, Willett Advisors, in 2010 to manage his personal and philanthropic assets.

“Some of these family offices are among the world’s most sophisticated investors and have the capital and talent to compete with the largest private equity firms and hedge funds,” said John P. Rompon, managing partner of McNally Capital, which helps structure private equity deals for family offices.

A spokesman for MSD declined to comment for this article. The buyout talks could still fall apart.

In 1998, Mr. Dell, then just 33 years old — and his company’s stock worth three times what it is today — decided to diversify his wealth and set up MSD. He staked the firm with $400 million of his own money, effectively starting his own personal money-management business.

To head the operation, Mr. Dell hired Glenn R. Fuhrman, a managing director at Goldman Sachs, and John C. Phelan, a principal at ESL Investments, the hedge fund run by Edward S. Lampert. He knew both men from his previous dealings with Wall Street. Mr. Fuhrman led a group at Goldman that marketed specialized investments like private equity and real estate to wealthy families like the Dells. And Mr. Dell was an early investor in Mr. Lampert’s fund.

Mr. Fuhrman and Mr. Phelan still run MSD and preside over a staff of more than 100 overseeing Mr. Dell’s billions and the assets in his family foundation. MSD investments include a stock portfolio, with positions in the apparel company PVH, owner of the Calvin Klein and Tommy Hilfiger brands, and DineEquity, the parent of IHOP and Applebee’s.

Among its real estate holdings are the Four Seasons Resort Maui in Hawaii and a stake in the New York-based developer Related Companies.

MSD also has investments in several private businesses, including ValleyCrest, which bills itself as the country’s largest landscape design company, and DentalOne Partners, a collection of dental practices.

Perhaps MSD’s most prominent deal came in 2008, in the middle of the financial crisis, when it joined a consortium that acquired the assets of the collapsed mortgage lender IndyMac Bank from the federal government for about $13.9 billion and renamed it OneWest Bank.

The OneWest purchase has been wildly successful. Steven Mnuchin, a former Goldman executive who led the OneWest deal, has said that the bank is expected to consider an initial public offering this year. An I.P.O. would generate big profits for Mr. Dell and his co-investors, according to people briefed on the deal.

Another arm of MSD makes select investments in outside hedge funds. Mr. Dell invested in the first fund raised by Silver Lake, the technology-focused private equity firm that might now become his partner in taking Dell private.
MSD’s principals have already made tidy fortunes. In 2009, Mr. Fuhrman, 47, paid $26 million for the Park Avenue apartment of the former Lehman Brothers chief executive Richard S. Fuld. Mr. Phelan, 48, and his wife, Amy, a former Dallas Cowboys cheerleader, also live in a Park Avenue co-op and built a home in Aspen, Colo.

Both are influential players on the contemporary art scene, with ARTNews magazine last year naming each of them among the world’s top 200 collectors. MSD, too, has dabbled in the visual arts. In 2010, MSD bought an archive of vintage photos from Magnum, including portraits of Marilyn Monroe and Mahatma Gandhi, and has put the collection on display at the University of Texas, Mr. Dell’s alma mater.

Just as the investment firms Rockefeller Company (the Rockefellers, diversifying their oil fortune) and Bessemer Trust (the Phippses, using the name of the steelmaking process that formed the basis of their wealth) started out as investment vehicles for a single family, MSD has recently shown signs of morphing into a traditional money management business with clients beside Mr. Dell.

Last year, for the fourth time, an MSD affiliate raised money from outside investors when it collected about $1 billion for a stock-focused hedge fund, MSD Torchlight Partners. A 2010 fund investing in distressed European assets also manages about $1 billion. The Dell family is the anchor investor in each of the funds, according to people briefed on the investments.

MSD has largely remained below the radar, though its name emerged a decade ago in the criminal trial of the technology banker Frank Quattrone on obstruction of justice charges. Prosecutors introduced an e-mail that Mr. Fuhrman sent to Mr. Quattrone during the peak of the dot-com boom in which he pleaded for a large allotment of a popular Internet initial public offering.

“We know this is a tough one, but we wanted to ask for a little help with our Corvis allocation,” Mr. Fuhrman wrote. “We are looking forward to making you our ‘go to’ banker.”

The e-mail, which was not illegal, was meant to show the quid pro quo deals that were believed to have been struck between Mr. Quattrone and corporate chieftains like Mr. Dell — the bankers would give executives hot I.P.O.’s and the executives, in exchange, would hold out the possibility of giving business to the bankers. (Mr. Quattrone’s conviction was reversed on appeal.)

The MSD team has also shown itself to be loyal to its patron in other ways.

On the MSD Web site, in the frequently asked questions section, the firm asks and answers queries like “how many employees do you have” and “what kind of investments do you make.”

In the last question on the list, MSD asks itself, “Do you use Dell computer equipment?” The answer: “Exclusively!”


This post has been revised to reflect the following correction:

Correction: January 18, 2013

An earlier version of this article misstated when an MSD affiliate raised money from outside investors for a hedge fund. It was last year, not earlier this year. The article also misstated which hedge fund and its focus. It was MSD Torchlight Partners, a stock-focused hedge fund, not MSD Energy Partners, an energy-focused hedge fund.

Article source: http://dealbook.nytimes.com/2013/01/17/michael-dells-empire-in-a-buyout-spotlight/?partner=rss&emc=rss

Bits: Jobs Stepping Down as Chief Executive of Apple

Steven P. Jobs iCloudJustin Sullivan/Getty Images Steven P. Jobs discussing the company’s iCloud service in June.

Apple said on Wednesday that Steven P. Jobs, its co-founder and leading product visionary, would step down from the chief executive role. Tim Cook, the chief operating officer, will take over the position.

In a letter sent to Apple’s board of directors and “the Apple community,” Mr. Jobs said he would like to remain as chairman of the board.

“I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple’s C.E.O., I would be the first to let you know,” Mr. Jobs wrote. “Unfortunately, that day has come.”

Mr. Jobs, 56, had surgery for pancreatic cancer in 2004 and had a liver transplant in early 2009. His health has gone through considerable ups and downs in recent years, according to a person briefed on his condition.

Although he has officially been on medical leave since January, Mr. Jobs has appeared in public to announce new Apple products. In June he was on stage in San Francisco to talk about iCloud, Apple’s latest foray into cloud-based computing. It is not clear how much Mr. Jobs has been involved in the company’s day-to-day operations recently. Apple is expected to unveil a new model of its hugely successful iPhone this fall.

“I believe Apple’s brightest and most innovative days are ahead of it. And I look forward to watching and contributing to its success in a new role,” Mr. Jobs said in the letter.

Apple’s stock dropped in after-hours trading, falling $16.61, or 4.4 percent, to $359.57.

Mr. Jobs founded Apple in 1976 with Steve Wozniak, and built the company’s reputation with the Apple II and Macintosh computers. He left Apple in 1985 after a conflict with John Sculley, then the chief executive. The following year, with a small group of Apple employees, he founded NeXt Computer, which ultimately focused on the corporate computing market, without notable success. In 1986, he bought the computer graphics division of Lucasfilm and re-established it as the independent animation studio Pixar.

A decade later he sold the NeXt operating system to Apple and returned to the company. In short order he was again at the helm and set out to modernize the company’s computers.

With the more recent introduction of the iPod, iTunes, iPhone and iPad, Apple has shaken up a range of industries. Mr. Jobs has been awarded much of the credit for turning Apple into one of the world’s most valuable companies. Last month Apple briefly became the most valuable company in the world in terms of market capitalization.

“In his new role as chairman of the board, Steve will continue to serve Apple with his unique insights, creativity and inspiration,” said Art Levinson, the chairman of Genentech and an Apple board member, in the company’s announcement.

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DealBook: Icahn Bids for Clorox, but Urges It to Seek Higher Offers

Clorox bleachJustin Sullivan/Getty ImagesBottles of Clorox bleach in a San Francisco grocery store.Carl C. Icahn's net worth was estimated by Forbes at  $10.5 billion in 2010.Mark Lennihan/Associated PressCarl C. Icahn’s net worth was estimated by Forbes at  $10.5 billion in 2010.

8:03 p.m. | Updated

The billionaire investor Carl C. Icahn sought to put Clorox on the auction block on Friday, offering to buy the households goods maker in a deal that would value it at $10.2 billion, while at the same time encouraging the company to actively seek higher bids.

Mr. Icahn, who already owns 9.4 percent of Clorox, told its chief executive, Donald R. Knauss, that he was willing to buy all the remaining shares in the company at a premium price.

But, Mr. Icahn said in a letter to Mr. Knauss, “While we stand ready and able to buy Clorox, we encourage you to hold an open and friendly ‘go-shop’ sale process.” He added, “We are confident the process will result in numerous superior bids for this company.”

Citing low interest rates, corporate cash piles and Clorox’s potential to add to other companies’ earnings, Mr. Icahn went on in his letter to say, “It seems clear to us that there are potentially multiple substantially larger strategic bidders with robust balance sheets who are in a position to make a bid.” Among those he cited were Procter Gamble, Unilever, Colgate-Palmolive, Reckitt Benckiser , Kimberly-Clark, Henkel and SC Johnson.

“Now is the right time for Clorox to be aggressive in pursuing a strategic transaction,” Mr. Icahn wrote in his letter, dated Thursday, which was disclosed in a regulatory filing on Friday morning.

And although Mr. Icahn assured Mr. Knauss that he was serious about his unsolicited offer, he made the case that Clorox would be better off finding a buyer from its own industry. “We understand that we are a financial buyer that lacks inherent synergies and therefore strongly suggest that the board aggressively pursue a transaction with a strategic buyer, which should attract a higher price,” he wrote, suggesting that a possible suitor could bid as much as $100 a share.

In contrast, Mr. Icahn is offering $76.50 a share. That price does represents a 12 percent premium over Clorox’s closing price on Thursday. Mr. Icahn noted in his letter that his bid was 21 percent higher than where Clorox shares closed on Dec. 20, the day before he began building his stake in the company.

Clorox’s shares jumped $6.12, or 8.9 percent, to close at $74.55 on Friday on the New York Stock Exchange. But they did not trade above Mr. Icahn’s offer during the day, indicating that least some investors failed to share Mr. Icahn’s confidence that a superior bid would emerge.

The offer, Mr. Icahn’s filing states, is backed by a “highly confident” letter from the investment bank Jefferies Company that it would be able to arrange $7.8 billion in financing for the deal, which would come in addition to equity contributed by Mr. Icahn’s affiliates.

Clorox, which makes bleach, Kingsford charcoal and Glad bags among other brands, said that its board would review the proposal. The company has hired Goldman Sachs and J.P. Morgan Securities as its financial advisers, and Wachtell, Lipton, Rosen Katz as legal counsel.

The unsolicited offer is a strategy that Mr. Icahn has employed before; in fact, 15 times since 1997, according to the data provider FactSet Shark Repellent. Earlier this year, he bid $1.9 billion for Mentor Graphics, with the aim of flushing out a potential bidder.

But some of his efforts have not worked out. For example, Mr. Icahn bid $665 million for Dynegy last year, and as he did with Clorox, he invited the independent power company to look for an alternative offer. But after approaching “more than 50” potential suitors, Dynegy’s advisers failed to find a buyer. In February, Dynegy’s shareholders rejected Mr. Icahn’s bid.

Michael J. de la Merced contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=60607ca6af4fdf7190a256e0d6111e4f