Blackstone, Icahn Bids Said to Let Investors Keep Dell

Dell Inc. (DELL) received proposals from Blackstone Group LP (BX) and billionaire Carl Icahn that would rival the $24.4 billion leveraged buyout offer from founder Michael Dell and allow shareholders to keep a stake in the company, according to people with knowledge of the matter.

Blackstone outlined an offer valued in excess of $14.25 a share in cash, said one of the people, who asked not to be identified because the process is private. The world’s largest private-equity firm is working with Morgan Stanley, which is confident it can raise debt to finance the deal, according to the person. Icahn said he’d pay $15 a share in cash for 58 percent of Dell, the person said.

Two primary complaints of shareholders about the offer from Michael Dell, who is working with buyout firm Silver Lake Management LLC, are that the $13.65-a-share price is too low, and that they can’t remain invested in the computer company to profit if its fortunes rebound. By responding to those criticisms, Blackstone and Icahn may be able to break up a deal that looked unstoppable when it was announced on Feb. 5.

Michael Dell, 48, is seeking to buy the Round Rock, Texas- based company he created in 1984 so it can remake itself without the pressure of being public as it struggles with falling profits and competition from smartphones and tablets. Competing offers were initially seen as unlikely. That’s because the founder could help finance the bid with his 15.6 percent Dell stake, and because buyout firms are often reluctant to step in the middle of a rival’s deal.

Photographer: Sam Hodgson/Bloomberg

Dell Inc. signage is displayed outside of the company's headquarters in Austin, Texas. Close

Dell Inc. signage is displayed outside of the company's headquarters in Austin, Texas.

Photographer: Sam Hodgson/Bloomberg

Dell Inc. signage is displayed outside of the company's headquarters in Austin, Texas.

Financing Commitments

As soon as tomorrow, Dell’s board will say whether the new non-binding proposals are reasonably likely to be superior, or that more time is needed to study them, the person said.

Under terms of the original merger agreement, the board would then have to determine whether either of the counteroffers is in fact superior. At that point, the bidder would have to get financing commitments to support its offer. After that, if the board accepts the new offer, it is required to give Silver Lake and Michael Dell at least four business days notice to top it.

Blackstone and Icahn submitted their proposals on March 22, the deadline of a so-called go-shop period designed to solicit competing bids. Southeastern Asset Management Inc. and T. Rowe Price Group Inc. (TROW), the company’s largest outside investors, were among the shareholder saying the original deal was too cheap.

Francisco Partners

The stock, which closed on March 22 at $14.14, has climbed since the LBO was announced amid speculation that Dell would fetch a higher price. At least five analysts see Michael Dell increasing the bid to as much as $15 a share. At $15, Dell still would be going private at about 5.4 times profit, the lowest multiple for a technology buyout larger than $1 billion, according to data compiled by Bloomberg.

Representatives for Dell, Blackstone, Icahn and Morgan Stanley declined to comment.

Blackstone, which is working with Francisco Partners LP and Insight Venture Partners LP, would acquire Dell, while providing existing shareholders with a chance to roll some of their shares into a so-called public stub that would give them a piece of the company, said one of the people. There would be a cap on how much stock existing shareholders could keep, this person said. Insight and Francisco Partners couldn’t immediately be reached for comment.

Blackstone, based in New York, has a better perspective on Dell after last year hiring Dave Johnson, the company’s former head of mergers and acquisitions. The firm was considering several options prior to the go-shop deadline, Bloomberg News reported previously.

Dell Financial

The company had envisioned a sale of Dell Financial Services to General Electric Co. (GE) or another buyer, the people said. The unit, which helps Dell customers finance purchases, wasn’t mentioned in the firm’s proposal, according to one person. The private-equity firm has also spoken to Southeastern to see if the firm would be interested in rolling in its stake, people with knowledge of the talks said.

Icahn’s proposal offers to pay shareholders $15 a share, said the person with knowledge of his plan. The 77-year-old activist investor wouldn’t buy the whole company, meaning a minority stake would still remain in public hands.

Icahn, who has acquired a stake of less than 5 percent in Dell, had called on the company to pay a special dividend of $9 a share if the Silver Lake deal failed. The New York investor had said that he’ll start a proxy fight to put up his own board candidates if Dell refuses.

Tech Deals

Blackstone, led by Stephen Schwarzman, oversees $210.2 billion of assets, the most among global buyout firms. Unlike Silver Lake, which focuses on technology companies, it hasn’t done many deals in the industry. Its two biggest haven’t fared well.

Blackstone and two partners bought Freescale Semiconductor Inc. for $17.6 billion in 2006. They have registered a more than 50 percent loss on their $7.2 billion investment in the deal, according to data compiled by Bloomberg. Blackstone was also part of a Silver Lake group that paid $10.6 billion for SunGard Data Systems Inc. in March 2005, a deal that is barely breaking even.

Michael Dell is seeking to take back majority control of the company he started in a University of Texas dormitory, after struggling to equip the PC maker for a new generation of competitors in mobile and cloud computing. He’s betting that he can more effectively transform Dell into a provider of a broad range of products and services for corporations outside the scrutiny of public investors.

The deal requires the support of more than half of the company’s investors, excluding Michael Dell.

Offer’s Restrictions

Michael Dell and Silver Lake agreed to a number of restrictions in an effort to create a deal that would withstand shareholder scrutiny, people familiar with the matter said last month. Neither Blackstone nor Icahn mentioned Michael Dell’s role in their offers, one of the people said.

One restriction on Michael Dell, 48, and Silver Lake is that they can only make one more bid, the people said. So if they move to top Blackstone or Icahn once, they are unable to make a second offer. The breakup fee of $180 million -- which Blackstone or Icahn would have to pay if they block the deal -- is half of the typical fee for a deal of this size, these people said.

Hewlett-Packard Co. (HPQ) and Lenovo Group Ltd. (992) also reviewed Dell’s books during the go-shop period, people familiar with the matter said.

Dell had last year privately forecast $5.6 billion in operating income for 2014, a figure that is now going to come in around $3 billion, said one of these people. That rapid fall could jeopardize the bank loans for Silver Lake, said this person, if the lenders on the deal made their financing commitment based on the higher numbers.

To contact the reporters on this story: David Carey in New York at; Jeffrey McCracken in New York at; Serena Saitto in New York at

To contact the editors responsible for this story: Christian Baumgaertel at; Katherine Snyder at

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