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Madison Dearborn agrees to buy CDW for $7.3 billion

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Madison Dearborn Partners LLC, the manager of a $6.5 billion leveraged buyout fund, agreed to buy CDW Corp. (Nasdaq: CDWC) for about $7.3 billion to tap cash flow generated by the computer reseller.

Investors will receive $87.75 a share in cash, Vernon Hills, Ill.-based CDW said. That's 16 percent more than the closing price May 25, before buyout speculation surfaced. CDW was started over a kitchen table more than 20 years ago.

The purchase gives Chicago-based Madison Dearborn a company with growing profit margins as customers reduce the number of suppliers. CDW's sales may rise 16 percent this year, double the 2006 rate, according to analyst estimates compiled by Bloomberg.

"It has a steady cash flow stream, no debt, a pristine balance sheet and a good management team,'' Morningstar analyst Andrew Golomb, who doesn't own the shares, said in an interview. "It's a company that has been the target of a lot of private equity firms for some time.''

CDW, with a market value of $6.6 billion based on Tuesday's closing price, plans to solicit more bids in the next 30 days.

Before approving the agreement, CDW's board conducted an auction with potential bidders, according to the statement.

Kitchen Table

Founder Michael Krasny started the company at his kitchen table by selling his own used computer, according to CDW's Web site. The company now employs 5,640 people. The largest shareholder, he controls about 22 percent of outstanding stock and is in favor of the deal. The purchase may close near the end of the third quarter or early in the fourth quarter, CDW said.

CDW had $351.6 million in cash at the end of last year. The company's 2006 profit slipped 2.2 percent to $266 million because of legal expenses, while sales rose 7.8 percent to $6.8 billion.

Chief Executive Officer John Edwardson has reorganized CDW by adding more salespeople, opening a new facility in Nevada and purchasing Berbee Information Networks Corp. to expand in areas such as health care. Average daily sales jumped 29 percent in April from the same month a year earlier, CDW said in May.

"They have really shown their ability to drive sales without forsaking profit,'' Golomb said. "There's no reason to mess with a good thing. As a whole, I don't think you're going to see a lot of major changes.''

CDW's operating margin, or income as a percentage of sales, widened to 6.3 percent in the first quarter from 5.9 percent a year earlier. CDW competes against Ingram Micro Inc. (NYSE: IM), Tech Data Corp. (Nasdaq: TECD) and Arrow Electronics Inc. (NYSE: ARW) in reselling computers and equipment, an industry where profit margins are often smaller than other sectors of technology.

The company received an unsolicited offer at the beginning of this year that prompted a review of potential bidders, and Madison Dearborn offered the most, Edwardson said in a conference call. CDW will hold a special shareholder meeting to discuss the acquisition.

The newly private company will keep the same long-term strategies and goals, Edwardson said in the call.

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