By Jessica Toonkel and Paritosh Bansal
March 24 (Reuters) – A special committee of Dell Inc’s
board is evaluating separate takeover proposals from
Blackstone Group and billionaire investor Carl Icahn to
decide whether either or both are likely to trump an existing
$24.4 billion take-private deal, a source familiar with the
discussions said on Sunday.
Icahn and Blackstone put in preliminary bids late last week,
potentially upsetting the plans of the No. 3 PC maker’s founder,
Michael Dell, and private equity firm Silver Lake to take Dell
private.
Dell could make an announcement as soon as Monday about
whether either of the rival offers were reasonably likely to
lead to a superior bid, the source familiar with the matter
said. But the source warned that the special committee of the
board may also decide to take longer to reach a decision.
Blackstone declined to comment. Dell and Icahn could not be
immediately reached for comment.
The unexpected rival bids for Dell throw the future of the
PC-maker into question. A “go-shop” period – during which the
target company actively looks for rival offers – for a deal of
this size rarely evokes competing offers. The bids now could
potentially turn the sale of Dell into a three-horse race, which
could drag out for months.
It also could threaten the future of Michael Dell, who
founded the technology giant at the age of 19 with just $1,000.
Under the Silver Lake plan, he planned to contribute his roughly
16 percent share of Dell’s equity to the deal, along with cash
from his investment firm MSD Capital, and to remain CEO of the
company.
Under Silver Lake and Michael Dell’s offer, Dell would be
taken private for $13.65 per share. Silver Lake is putting up
$1.4 billion in the deal.
But that plan has come under attack from several
high-profile Dell shareholders such as Southeastern Asset
Management and T. Rowe Price. The shareholders have said that
his offer undervalues the company and pledged to vote against
the deal, which requires a majority of shareholders, excluding
the founder, to pass.
RIVAL BIDS
Icahn has offered $15 per share for 58 percent of Dell’s
stock, the source said.
Under his proposal, the shareholders will have a choice of
electing cash or stock, but there would be a cap on the amount
of cash they could get, the source said. In other words, if all
Dell shareholders chose to cash out, they could only sell 58
percent of their stock, retaining the other 42 percent that will
remain publicly traded.
Icahn is being advised by investment bank Jefferies Group
Inc. The activist investor, who has taken a stake in Dell,
earlier this month demanded Dell pay out $15.7 billion in
special dividends. He is no longer asking for that, the source
said.
Icahn plans to fund his bid with his own money, Dell’s cash
as well as new debt, the source said.
Jefferies declined to comment.
Blackstone, meanwhile, has offered to pay in excess of
$14.25 per share for Dell, the source said. The New York-based
alternative investment firm has not specified a range of the
bid, but has two other equity partners – Francisco Partners and
Insight Venture Partners.
Francisco and Insight could not be reached immediately for
comment.
Under Blackstone’s proposal, Dell also would have a certain
amount of stock publicly traded, the source said. But unlike the
Icahn proposal, Blackstone has proposed buying out any
shareholder that wants to cash out of Dell.
Instead, Blackstone is proposing to cap the amount of stock
that would be outstanding in the publicly equity stub, the
source said, adding that the private equity firm has not
specified what that cap is.
Blackstone is being advised by Morgan Stanley, which
has also given it a highly confident letter of financing, the
source said.
Morgan Stanley declined to comment.
There have also been some conversations about the Blackstone
group selling Dell’s financial services business, but that is
not part of the current proposal, the source said.
NEXT STEPS
Dell was regarded as a model of innovation as recently as
the early 2000s, pioneering online ordering of custom-configured
PCs and working closely with Asian component suppliers and
manufacturers to assure rock-bottom production costs.
But as of 2012’s fourth quarter, Dell’s share of the global
PC market had slipped to just above 10 percent from 12.5 percent
a year earlier as its shipments tumbled 20 percent, according to
research house IDC.
Michael Dell returned to the company as CEO in 2007 after a
brief hiatus, but has been unable to engineer a turnaround thus
far. Dell’s focus on corporate computing in recent years has yet
to yield results, critics note.
Competing successfully against incumbents, including IBM
and Hewlett-Packard, will not be easy no matter
what the corporate structure.
A source earlier said that Dell had slashed its internal
forecast for fiscal 2013 operating profit to about $3 billion –
down sharply from the $3.7 billion it had predicted previously.
The source added that more details will be revealed in a proxy
filing which is expected by the end of this week.
Meanwhile, if the special committee of the board decides
that either – or both – of the rival bids for Dell are
reasonably likely to lead to superior offers, Icahn and
Blackstone will have to present firm bids for Dell. The
negotiations are likely to take weeks, the source said.
At that point, the special committee will again need to
decide whether the firm bids from Icahn and Blackstone, which
include features such as committed financing, were superior to
the Silver Lake-Michael Dell agreement.
If they are superior, Silver Lake and Michael Dell will get
one shot at revising their original bid. Unlike most other
go-shop processes, where the original bidders get several
chances to match rival bids, Dell has given its founder and
Silver Lake the right to do so only once.
