Dell Says Blackstone, Icahn Offers May Be Superior
Dell Inc. (DELL) said it got proposals from Blackstone Group LP (BX) and Carl Icahn that may be superior to Michael Dell’s $24.4 billion buyout plan, putting pressure on the founder to sweeten his terms or switch allegiances.
Blackstone’s plan values Dell at more than $14.25 a share, while Icahn would pay $15 a share in cash for as much as 58.1 percent of the stock, Dell said today in a statement that included their offers. Under both plans, some shares may continue to be publicly traded. Michael Dell, who proposed $13.65 a share, is willing to work with third parties on the alternative plans, the company said.
The challenges to the original bid, which came as Dell (DELL) struggles to catch up with a new wave of nimbler competitors in mobile computing and business services, mean Michael Dell could lose control of the firm he founded in his Texas dorm room in 1984. His plan, backed by partner Silver Lake Management LLC, was to retool Dell as a maker of data-center gear and software for corporations -- without the scrutiny of public investors.
“Blackstone and Icahn are financial buyers, not ego buyers, and their name isn’t on the door, so they won’t stay in a bidding war that requires them to overpay,” said Erik Gordon, a business and law professor at the Stephen M. Ross School of Business at the University of Michigan in Ann Arbor.
Blackstone is proposing a leveraged recapitalization transaction. Investors could choose to get either all cash or equity, subject to a cap, if they want to stay invested in Dell. The shares would continue to be publicly traded.
Blackstone, which has teamed up with Francisco Partners (PEF3393), a San Francisco-based technology-oriented buyout shop, and New York-based venture firm Insight Venture Partners, said it plans to fund the transaction with a combination of equity and debt financing, in addition to using Dell’s cash and equivalents. Blackstone said it held discussions with some of Dell’s largest shareholders and plans to invite them to join the transaction.
Morgan Stanley (MS), which is working with Blackstone to lead financing, has issued a letter saying that it’s “highly confident” that Blackstone will obtain financing. Other parties have “indicated a strong interest” in helping finance the deal, said Blackstone.
Michael Dell deems Blackstone’s offer management-friendly and plans to speak with the private-equity firm, a person with knowledge of the matter said.
Blackstone may take several weeks to make its plans firm, according to a person with knowledge of the matter. Multiple European banks and at least one big U.S. financial services company want to participate, this person said.
Once Blackstone submits a formal proposal with an outline of committed financing, Dell’s special committee can take as long as needed to determine whether it outshines the Silver Lake-led deal -- though Blackstone could impose a deadline, this person said.
Icahn is offering shareholders the option to roll over their stakes or receive $15 a share in cash, with the amount of cash limited to $15.65 billion, according to the statement. Icahn has enlisted Jefferies LLC to conduct due diligence.
Icahn’s offer assumes that Southeastern Asset Management Inc. and T. Rowe Price Group Inc., among the largest Dell investors after Michael Dell, would contribute their stakes and won’t receive a cash payment.
If the cash portion is fully used, it would result in 1.04 billion shares, or 58.1 percent of current shares outstanding, being acquired. If fewer shareholders decide to sell, the cash not needed would be distributed as a special dividend.
What role Michael Dell would play in either scenario is in question. While Blackstone invited the executive to use his stake to participate in the transaction, the firm’s proposal doesn’t include him as CEO, people with knowledge of the matter said. Icahn’s proposal also excludes Dell from management, people familiar with the billionaire’s plans said.
Southeastern Asset Management welcomed the alternate bids, saying they give “shareholders the opportunity to continue to participate in the company’s future prospects, while also providing a higher cash component for shareholders who choose to exit their investment.”
T. Rowe Price declined to comment, Brian Lewbart, a spokesman, wrote in an e-mail. Southeastern Asset Management and T. Rowe Price (TROW) had previously said they would oppose the original buyout offer because it is too cheap.
$15 a Share?
Dell’s special committee for the go-shop process, during which the buyout target could solicit competing offers, hasn’t determined that either the Blackstone or the Icahn proposal constitutes a superior proposal, according to today’s statement.
While talks continue, the special committee continues to support the Silver Lake-led buyout proposal.
Under terms of the original Feb. 5 agreement with Silver Lake, the board will take time to determine whether the counteroffers are superior. If the board accepts a new deal, it must give Silver Lake and Michael Dell at least four business days’ notice to top it. Michael Dell, who owns 15.6 percent of the stock, and Silver Lake have just one chance to do so, unless they preemptively propose a higher bid.
At least five analysts surveyed by Bloomberg earlier this month saw the buyout group increasing the bid to as much as $14.90 to $15 a share.
“Michael wants to play a role here,” said Jayson Noland, an analyst at Robert W. Baird in San Francisco, who has a neutral rating on the shares. “This is his company -- it’s been his life, his name’s on the door and he’d like to be part of the next stage,” he said. “The most likely scenario is Silver Lake and Michael Dell take this company private for something north of what they’re currently offering.”
At $15, Dell still would be going private at about 5.4 times earnings before interest, taxes, depreciation and amortization, the lowest multiple for a technology buyout larger than $1 billion, according to data compiled by Bloomberg.
For the 48-year-old chief executive officer, once part of a technology-industry pantheon that includes Microsoft Corp. co- founder Bill Gates and Oracle Corp. (ORCL) CEO Larry Ellison, prevailing in a surprise takeover fight could help in the effort to restore Dell’s reputation and performance. Once the world’s largest maker of PCs, Dell has floundered as those machines have been eclipsed by tablets and smartphones from companies such as Apple Inc. and Samsung Electronics Co.
“Dell is the most challenged company in my coverage universe, and two-thirds of their business ships with a hard- disk drive attached,” said Brian Marshall, an analyst at ISI Group in San Francisco, contrasting Dell’s PC-related business to mobile devices that user faster forms of memory. “Two-thirds of their revenue is commoditized. People are very cautious and leery,” said Marshall, who has a neutral rating on the shares.
Blackstone and Icahn submitted their proposals on March 22, the deadline of the go-shop period. Southeastern Asset Management and T. Rowe Price (TROW) have said they would oppose the original buyout offer because it is too cheap.
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