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CDW Readies for Buyout

Tentative agreement to sell out to private equity firm will open 30-day bidding process

CDW, one of North America's largest resellers of computer hardware and software, with a substantial stake in storage and security gear, has agreed to be bought by a Chicago-based private equity investment firm Madison Dearborn Partners LLC for $7.3 billion, or $87.75 per share.

The CDW buyout is aimed for completion in the late third quarter or early fourth quarter 2007. First, though, CDW shareholders must approve the offer. And before that, CDW, with the help of Morgan Stanley, will open a "go shop" period, soliciting bids for higher alternative proposals for 30 days.

The transaction follows a recent trend toward large companies going private, as evidenced in the recent sale of DaimlerChrysler to a private firm. Experts say exiting the public markets can help companies simplify their administrative tasks, benefit from fresh investment, and lower risks involved in public ownership.

And for now at least, private firms are also exempt from some of the burdensome compliance regulations public companies shoulder -- though that could change within a year or so. (See Audit Pins & Needles.)

CDW’s founder Michael P. Krasny, who controls directly or indirectly approximately 22 percent of the outstanding shares of common stock, has agreed to vote favorably when the merger is put to shareholder vote.

"This transaction represents the next chapter for CDW. We believe it provides a compelling opportunity to immediately maximize value for our shareholders," said John A. Edwardson, CEO and chairman, in a prepared statement.

CDW, based in Vernon Hills, Ill., is a major reseller of IT products from Adaptec, BakBone, CA, Cisco, Citrix, EMC, EMC/RSA, Emulex, EqualLogic, HP, IBM, Qlogic, Quantum, and Symantec, to name just a few. IT software accounted for 16 percent of $1.859 billion in quarterly revenue for the three months ended March 31, 2007 -- about $297 million. Data storage devices accounted for 13 percent, or roughly $240 million. Revenue growth was 17 percent year-on-year.

CDW partners contacted at press time had not responded to questions on their sentiments. But CDW, which has separate corporate and government sector sales divisions, clearly sees things moving forward as ever. "While this sounds like a big change — and it is — please keep in mind that our goals, strategies and values remain unchanged. You’ll still work for the same company with the same manager in the same building and serve the same customers," Edwardson wrote in a memo on the merger to the company's 5,500-odd employees, which it calls "coworkers."

On a conference call with analysts, Edwardson pointed mostly to an upcoming SEC filing that should clear up more questions on the management and running of the company under new private ownership.

In a startling comment, Edwardson reacted aggressively to one reporter's question about rumors that CDW has lowered its prices to bolster position against competing VARs, which include Systemax and Insight Enterprises, to name just two. "I have to say how disappointed I am in your question. It is totally inappropriate," Edwardson snapped before moving on.

Edwardson says CDW got the idea to go private after being approached with an offer from an undisclosed source. The board of directors subsequently launched an auction process, in which MDP's offer exceeded others.

Over the next month, another suitor could step forward. In the meantime, Wall Street seems to like the MDP proposal. "We believe CDW's strong balance sheet, no debt, and strong cash generation made the company an attractive target for private equity," wrote Daniel R. Renouard of Robert W. Baird & Co. in a note today. "We are raising our price target to $88 as we believe shares will trade around the take-out price until deal close."

At press time, CDW shares were trading at $85.26, up $2.15 (2.59 percent).

— Mary Jander, Site Editor, Byte and Switch

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