(Corrects terms of go-shop period in sixth, 20th paragraphs.)
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 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. Blackstone 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 the company’s stock, the person said.
The proposals present unexpectedly serious challenges to Michael Dell’s effort to take private the Round Rock, Texas- based computer maker he created in 1984 as it struggles with competition from smartphones and tablets. Unlike the founder’s offer, both rival plans give shareholders a way to participate in any potential upside, addressing criticism from investors who deemed the buyout offer of $13.65 a share as too low.
It’s also rare for one private-equity firm to seek to break up another’s deal. The strengths of Michael Dell’s offer include his participation and his decision to roll over his 15.6 percent stake to help finance the purchase.
It may take weeks before Silver Lake and Michael Dell need to decide to make a new offer, the person said. Tomorrow, Dell’s board will say whether the new proposals are reasonably likely to be superior, or most likely say it needs more time to study the offers, 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 the bidders would have to get financing commitments to support their 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 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 on March 22 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. Mary Claire Delaney, a spokeswoman for Morgan Stanley, also declined to comment.
Dell isn’t planning to disclose whether it received bids until tomorrow, people familiar with the matter have said.
Blackstone, which is working with Francisco Partners LP and Insight Venture Partners LP, would acquire Dell’s shares offering existing shareholders to roll in their shares in a so- called public stub, with a cap on how much stock they can keep, said one of the people. Insight and Francisco Partners weren’t immediately reachable for a comment.
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 previously. The firm had explored making a bid with private- equity firm TPG Capital, said people familiar with the matter. TPG isn’t part of the group that submitted the proposal, said one person.
Blackstone had envisioned a sale of the Dell Financial to General Electric Co. (GE:US) or another bidder, the people said. The unit’s sale 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 billionaire would limit his cash outlay, meaning a minority stake 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.
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.
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. One is that Michael Dell, 48, and Silver Lake 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.
Neither Blackstone nor Icahn mentioned Michael Dell’s role in their offers, one of the 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.
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