Activist investor Carl Icahn will need as much as $7bn to carry off his plan to pull Dell out from under Mike Dell’s nose, banking sources have said.
The shareholder and his partner Southeastern Asset Management (SAM) have started talks with banks and financial firms to get bridge loans of up to $7bn for their plan to plough money back into Dell rather than letting Mike and his mate Silver Lake Partners take the firm private.
Sources told Thomson Reuters LPC that Jeffries and Co, the investment bank that’s leading the deal, has already committed $1.6bn and is looking for commitments as large as $1bn from other lenders.
Mike Dell and Silver Lake Partners have put forward a plan to take Dell private at a price tag of $13.65 per share, or $24.4bn, and already have backing for around half of their plan from banks and Microsoft.
Icahn and SAM countered the deal earlier this month, proposing that shareholders get the option to hang on to their existing stock and get an extra $12 in either cash or shares. They argue that Mike Dell’s offer undervalues the company, which still has a lot of potential in the enterprise services market. ®
Apple has been operating practically tax-free in Ireland since 1980, a former exec has claimed.
The ex-Cupertino veep spoke out as the fruity firm was accused of being a “tax resident nowhere in the world” by Senator John McCain (R-AZ) during a hearing of the US Senate’s Permanent Subcommittee on Investigations. The iPhone maker was also accused of routing sales through overseas subsidiaries purely to minimise its tax bills back at home.
Chief exec Tim Cook, who was summoned to the Senate proceedings, denied those charges, saying that Apple’s Irish business was a company “set up to provide an efficient way to manage Apple’s cash from income that’s already been taxed” elsewhere.
Subcommittee chairman Senator Carl Levin (D-MI) said during the hearing that, between 2009 and 2012, Apple declared profits of $38bn in the US, while its Irish subsidiaries trousered $74bn. In 2011 alone, he said, 64 per cent of Apple’s global pretax income was recorded in Ireland, despite just four per cent of Apple employees and one per cent of Apple customers being located there.
Apple said it paid $6bn in US taxes in 2012. The company’s chief financial officer Peter Oppenheimer added that if two-thirds of the firm’s profits happened to be in Irish companies, that was “because of the way we set ourselves up 30 years ago”.
Meanwhile, Ireland’s finance minister Michael Noonan has said that his country is not to blame for Apple’s tax avoidance because Apple isn’t resident there.
“I do not want to be the whipping boy for some misunderstanding in a hearing in the US Congress,” he said during a parliamentary committee meeting on Wednesday.
Responding to a question on Apple’s apparently magical tax rate in Ireland, Noonan said: “Maybe there was a magician, but the magician wasn’t living down in Cork [where Apple is based in Ireland]. Because [Apple] is not tax resident in Ireland, [it is] not liable to Irish tax.”
But Del Yocam, veep of manufacturing at Apple in the early 1980s, told Reuters that the firm did get a favourable tax rate back then, one that was offered to many companies, which is openly admitted by the Irish government.
From 1956 to 1980, the country attracted foreign companies by offering them a zero rate of tax and from 1980, any multinational that was exporting its products got a tax holiday until 1990. As part of the deal to join the European Economic Community, before it became the European Union, the country had to stop offering tax holidays to exporters, but it could still give a low ten per cent rate to firms, providing they qualified as manufacturers.
Phillip Bullock, Apple’s head of tax operations, claimed that since the 1990s, Ireland and Apple have continued this arrangement, despite the fact that much of the Mac maker’s manufacturing has been outsourced to Asia.
“Since the early 1990s, the government of Ireland has calculated Apple’s taxable income in such a way as to produce an effective rate in the low single digits,” he told the Senate subcommittee.
However, Ireland continues to insist that Apple gets the same 12.5 per cent corporation tax rate as everyone else – already a much lower rate than the UK’s 23 per cent main rate or the up to 35 per cent paid in the US – it’s just that Apple isn’t paying in the country.
Cupertino apparently manages this feat by having its main Cork-based business Apple Sales International, earning the profits but two other Cork-based firms Apple Operations Europe and Apple Operations International own the firm’s intellectual property rights and all three firms are registered in the US. This structure seems to result in the curious state of affairs of the profits not really being tax resident anywhere. ®
The US judge who will decide the ebook price fixing case has suggested the government will be able to show that Apple was part of the conspiracy, before the trial has even begun.
In a somewhat unusual move, US District Judge Denise Cote said at a pretrial hearing that she thought the Department of Justice would be able to show evidence that Apple conspired with book publishers to fix the price ebooks, although she did stress that her view wasn’t final.
“I believe that the government will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of ebooks, and that the circumstantial evidence in this case, including the terms of the agreements, will confirm that,” Cote said, according to Reuters.
Apple is the only holdout left in the case after all five publishers, Penguin, Macmillan, HarperCollins, Simon Schuster and Hachette, settled with the DoJ.
Penguin looked for a while like it might join the company in court, but needed to sort the case out before it could get regulatory approval for its merger with Random House.
It announced yesterday that it was paying $75m to settle up, as well as scrapping agency contracts and ditching “most favoured nation” clauses, which stopped publishers from offering better deals to other retailers.
Apple has consistently denied being involved in price-fixing, claiming its agency agreements with the publishers were just good business sense and that if others were meeting to discuss prices, Apple wasn’t meeting with them. ®
US managed services provider ServiceKey has walked away from legal action brought by Oracle over an alleged “grey market conspiracy” without having to cough a bean in compensation.
The software titan’s legal eagles filed a lawsuit against two US channel firms in February 2012, including Georgia-based ServiceKey and Delaware-based DLT Federal Business Systems Corporation.
In the case, Oracle alleged that the pair had “conspired” to snatch and distribute copyrighted proprietary Oracle software, claiming they had unlawfully used the login details needed to download code from a password-protected site.
Oracle claimed the two firms had lifted “vast quantities” of software patches and updates for proprietary software that they then sold to customers including the US Navy and the Food and Drug Administration.
Larry’s lot had been seeking compensation and a commitment that the two firms would cease and desist form their alleged actions.
The CEO at ServiceKey, Angela Vines, had protested her innocence and last night issued a statement confirming the settlement.
“The effect of this settlement is to fully resolve all the time-consuming and expense of litigation that ServiceKey has endured over the past year and a half,” she said.
Under the terms of the settlement found by The Channel, ServiceKey officers and staff must search all computers and storage locations and destroy any Oracle intellectual property they were not entitled to use or sell.
The MSP must also allow Oracle to audit annually any work relating to Sun/Oracle hardware for the next half a decade.
ServiceKey must not access or log into any password-protected elements of Oracle’s website, whether on its own behalf or on behalf of a third party, and it must not give, receive or sell Oracle/Sun software including updates, bug fixes or patches.
Additionally, the MSP must not represent itself to any third party as an official partner that can access or obtain Oracle software or support materials, the settlement said.
However, under the settlement, ServiceKey has “no obligation to pay damages” to Oracle, and both parties will pay their own legal bills.
Vines thanked all who were “loyal and continued to support us through this entire distraction”.
The agreement requires certain approvals from the US District Court of the Northern District of California, which are expected soon.
A hearing between DTL Federal Business Corporation and Oracle is set for July.
Oracle refused to comment. ®
The BBC has suspended its chief technology officer on full pay – after it spunked almost £100m on a “tapeless” digital content management system that didn’t deliver.
The £98.4m figure attributed to the failed Digital Media Initiative (DMI) may be a conservative estimate: the BBC Trust has commissioned an external technical inquiry into the fiasco, to discover how it happened and how much it really cost licence-fee payers. The trust has also axed the initiative.
The Beeb confirmed to The Register that CTO John Linwood, who was paid £287,800 last year, has been suspended on full wages. “Technology controller” Peter Coles will take over as acting chief technology officer and report to BBC operations director Dominic Coles.
BBC Director General Tony Hall said that DMI had “wasted a huge amount of Licence Fee payers’ money and I saw no reason to allow that to continue”. Continuing DMI, wrote BBC Trustee Anthony Fry in a letter to Parliament’s influential Public Accounts Committee, would be “throwing good money after bad”.
“The industry has developed standardised off-the-shelf digital production tools that did not exist five years ago,” explained Dominic Coles in a blog post. “The cost is so great because much of the software and hardware which has been developed would only have a value if the project was completed and we cannot continue to sanction any additional spending on this initiative.”
In an internal email seen by The Register announcing the management change, Coles added:
“It’s important that we make sure that a project failure of this scale never happens again and I will continue to work with the [technology, delivery and archives] senior management group, together with and all our key stakeholders across the BBC through the Operations Board, to ensure that we have appropriate safeguards in place to avoid a similar situation in the future.”
The BBC has an IT budget of £400m a year.
The DMI project has already been the subject of a critical National Audit Office report. The project began in 2004 and was then outsourced to Siemens – without an open procurement competition. Then Siemens IT Solutions and Services, the bit doing the work for the Beeb, was acquired by Atos, which continued to work for the broadcaster under contract. In 2009 DMI was then “reinsourced”, or brought back in house in other words.
In 2011 the government’s audit office reported that DMI was “not value for money“. The auditors added:
“The BBC did not revisit the investment case at this point or test delivery options, such as finding a new contractor…. It told us this was largely because of the time a full EU public procurement would take and the potential impact of further delay on other time-critical BBC projects.”
But here we are. One question the BBC Trust should explore is why it took so long to kill DMI. Parts of the system have gone live, but the costs continued to escalate.
One source familiar with the project told the The Register that DMI was regarded as the “next big thing”:
“All of these grandiose schemes fail to account for the diverse cultures/requirements, in their original concepts. Eventually they realise this and become massive and unwieldy as they try to stretch the concepts into operations which have their own traditions as to how to deliver.”
The BBC can deliver IT projects competitively. Before content management systems really existed, it developed one at a fraction of the cost of comparable private sector systems – a story we told here. At other times, IT projects resemble an open-ended job creation scheme.
Linwood’s future is unclear – but senior editorial staff who found themselves sidelined have been simply been reassigned to new jobs. ®
Next page: Read the original BBC memo announcing the DMI system