Dell Negotiations to Buy Quest Software Said to Collapse

Dell Inc.’s negotiations to buy Quest Software Inc. broke down and the companies are no longer in talks, according to a person with knowledge of the matter.

Dell had been close to a deal for Quest, said a person last week who declined to be identified because the discussions were private. The companies could choose to resume discussions.

Quest, which agreed in March to be bought by private-equity firm Insight Venture Partners for about $2 billion, has said it received other offers. The company makes software to help businesses manage databases and servers, as well as back up information and recover lost data. Before yesterday, the stock had surged 34 percent this year amid speculation that another buyer would top Insight’s $23-a-share bid.

“There’s a multitude of reasons why they could break down, and it could have just got to the point of bidding where Dell didn’t want to play anymore,” said Brian Freed, an analyst at Wunderlich Securities in Denver who has a buy rating on Quest. Microsoft Corp. or other private equity firms might still consider bids, and Quest could sell for as much as $26 a share, he said.

Quest, with a market value of about $2 billion, also helps customers monitor the performance of applications that run businesses. The stock lost 5 percent to $23.74 at the close in New York yesterday. Dell shares fell 2.1 percent to $12.07.

‘Superior Proposal’

Representatives from Insight and Microsoft couldn’t immediately be reached for comment, while spokesmen for Dell and Quest declined to comment.

Quest said on March 9 that it agreed to be taken private by Insight. Two months later, the Aliso Viejo, California-based company said it received several other offers during a so-called “go-shop” period that are “reasonably expected to lead to a superior proposal.”

JPMorgan Chase & Co. has said Quest is worth about $28 a share, based on the software provider’s sales and cash flow, and could attract bids from International Business Machines Corp., Dell or private-equity firms.

Morgan Stanley is advising Quest on its strategic options.

Bloomberg News was first to report on May 24 that Dell was in advanced discussions to acquire Quest.

Reuters reported the breakdown in talks earlier yesterday.

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