CDW Sells Itself

CDW’s Chairman and CEO John Edwardson described a meeting of the minds between his company’s management and the private investment firm that has agreed to acquire it in a deal struck May 29 worth $7.3 billion.

Edwardson said that CDW’s management and private equity firm Madison Dearborn Partners had a consensus over CDW’s long-term goals as a company and promised that more information about the deal’s structure, future management structure and other details would be available once CDW filed its proxy statement with the U.S. Securities and Exchange Commission.

Edwardson made the statements during a conference call with analysts and members of the press on May 30. The deal was announced late the day before.

Analysts and consultants speculate that those long-term goals shared by CDW management and the company’s private equity acquirer are likely to include in large part a continued move into the higher-margin solutions and services space, something that CDW has already dipped its toes into with the acquisition of Berbee in September 2006.

Analysts said that by taking the company private, CDW will have more flexibility to pursue those goals without the scrutiny of Wall Street.

CDW had a “blowout” March.
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Edwardson said he does not expect the deal to take the company private to affect CDW’s ability to make acquisitions more quietly. However, he acknowledged, “I’m looking forward to having investor meetings without worrying about future disclosures.”

In the conference call with analysts and press, Edwardson said CDW did not initially pursue the deal but was approached.

“Earlier this year our board received an unsolicited indication of interest from a private equity group,” Edwardson said. “Following this event the board conducted an auction process, and a number of potential bidders participated.”

The proposal from Madison Dearborn represented the highest bid, he told participants during a question and answer session following the formal part of the call. Under the deal, CDW shareholders will be paid $87.75 in cash for each share of common stock held, representing a premium of 16.1 percent over the company’s closing stock price on May 25, the last day of trading before word of a potential deal was published.

Under the merger agreement CDW will actively solicit proposals from additional third parties for the next 30 days, with assistance from the financial firm Morgan Stanley. But that doesn’t guarantee that shareholders will have multiple bids to choose from, said one analyst.

“We would be surprised if another bidder entered the picture,” said Brian Alexander, senior vice president of equity research for technology hardware/distribution in a report issued May 30 before the CDW call. “We view it as unlikely that an IT vendor like HP or IBM would be a potential suitor given CDW’s attractiveness as a multivendor provider of IT solutions.”

Alexander said the next target for a private equity takeover may be CDW competitor Insight, a company considered “cheap enough” for private equity investors in spite of its current cash flow generation inconsistencies.

“In our view this is fixable,” said Alexander in his report.