Bloomberg News

Blackstone Group, Icahn Said to Submit Proposals to Dell

March 24, 2013

(Corrects terms of go-shop period in fourth, 19th paragraphs in story published March 23.)

Blackstone Group LP (BX:US) and activist investor Carl Icahn submitted proposals to buy Dell Inc. (DELL:US) that would rival a $24.4 billion buyout offer from Silver Lake Management LLC and company founder Michael Dell, according to people with knowledge of the matter.

Blackstone, the world’s biggest private-equity firm, outlined an offer valued at $13.65 to $14.50 a share, said one of the people, who asked not to be identified because the process is private. Icahn said he’d pay $15 a share, with a cap on the amount of cash used in the deal, two people said.

The proposals present unexpectedly serious challenges to Michael Dell’s effort to take private the Round Rock, Texas- based company he founded in 1984 as it struggles with competition from smart phones and tablets. The transaction’s strengths include the founder’s participation and his decision to roll over his 15.6 percent stake to help finance the purchase. It’s also rare for one private-equity firm to seek to break up another’s deal.

Now, Dell’s board probably will conclude in the next few days that both proposals are reasonably likely to be superior, said one of the people. Under terms of the original Feb. 5 merger agreement with Silver Lake, the board would then take time to determine whether the counteroffers are superior. At that point Silver Lake and Michael Dell, which offered $13.65 a share, would get at least four business days notice that the board had endorsed another bid.

Too Cheap

Blackstone and Icahn submitted their proposals yesterday, the deadline of a so-called go-shop period designed to solicit competing bids for Dell. Southeastern Asset Management Inc. and T. Rowe Price Group Inc. (TROW:US), the company’s largest outside investors, have said the original deal is too cheap. The stock, which closed yesterday at $14.14, has climbed since the leveraged buyout was announced amid speculation that Dell would fetch a higher price.

A spokesman for the Dell special committee running the go- shop process didn’t return calls or e-mails seeking comment. David Frink, a spokesman for Dell, Christine Anderson, a spokeswoman for New York-based Blackstone, and Icahn declined to comment.

Dell isn’t planning to disclose whether it received bids until March 25, people familiar with the matter said yesterday.

Blackstone, working with a group, would acquire Dell’s shares while including a public stub, a security that would allow other investors to be involved in the deal, the person familiar with the plan said. The company would try to sell Dell Financial Services, which helps customers finance purchases of Dell products, to help fund the offer.

Options Considered

Blackstone, which last year hired Dave Johnson, Dell’s former head of mergers and acquisitions, was considering several options prior to the go-shop deadline, Bloomberg News reported yesterday. The firm had explored making a bid with private- equity firm TPG Capital and tech investment fund Francisco Partners, said people familiar with the matter. TPG isn’t part of the group that submitted the proposal, one person said today.

Blackstone had envisioned a sale of the Dell Financial to General Electric Co. (GE:US) or another bidder, people said.

Blackstone has 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 billionaire would limit his cash outlay, meaning a piece of the company could still remain in public hands.

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

Public Participation

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.

Cloud Impact

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.

Michael Dell, 48, 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. One 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:US) 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 (DELL:US) 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 dcarey13@bloomberg.net; Cristina Alesci in New York at calesci2@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editor responsible for this story: Stanley James at sjames8@bloomberg.net


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Companies Mentioned

  • BX
    (Blackstone Group LP/The)
    • $33.93 USD
    • -0.41
    • -1.21%
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