Blackstone’s Offer For Dell May Not Be A Charade After All
While The New York Times reported earlier this month that analysts and industry commentators were beginning to wonder whether private-equity giant Blackstone’s (NYSE:BX) bid for Dell (NASDAQ:DELL) was merely a charade, evidence to the contrary is growing. Sources told The Wall Street Journal that the firm has meet with several technology companies about potentially joining its efforts to buy out the struggling personal computer manufacturer.
Given the complexity that a turnaround of Dell would entail — especially as the company is woefully behind the current technological trend toward mobile computing — any potential partner would be involved in determining Dell’s strategic direction, in addition to its financial role. According to the Journal’s sources, Blackstone has discussed several possible financial scenarios with prospective partners, including debt financing, an equity state, or a combination of those two options. However, the prospective partners that have been solicited by Blackstone were not divulged.
For its part, Dell has said that its special committee of directors will continue to evaluate the proposed offers that were laid before it during the go-shop period. After private-equity firm Silver Lake — in conjunction with company founder and Chief Executive Officer Michael Dell — put forward the $24.4 billion offer on February 5, the committee mandated that any offer submitted during the 45-day go-shop period must be explored “in good faith.”
Blackstone can count on Dell’s largest outside shareholder, Southeastern Asset Management, to support the buyout efforts. The firm already plans to roll its 8.4 percent stake into an offer for the firm, the publication’s sources said. In comparison, Southeastern has been a vocal opponent of the deal that Blackstone is trying to beat, the offer of $13.65 per share made by Mr. Dell and Silver Lake. The shareholder has said that offer — which represented an approximate 25 percent premium to Dell’s share price before the deal talks were made public, undervalues the company and does not give current shareholders the opportunity to participate in the turnaround.
So far, as the Journal reported, Blackstone’s discussions with Southeastern show “the firm is trying to assemble the pieces to cement an offer for Dell.”
While Blackstone has held several discussion with Mr. Dell about including him in the bid, it is still unclear if the two parties can reach an agreement on his stake and who would run the company in a Blackstone-led deal, said the publication’s sources. But activist investor Carl Icahn, who is also pursuing his own buyout deal, has said he may attempt to join forces with Blackstone as well.
By permitting existing shareholders to put their stakes into the deal, Blackstone would decrease the amount of money it would need to outbid Silver Lake’s offer, which includes the 16 percent stake owned by Mr. Dell, the $750 million in cash that he and his investment firm are contributing, and the $2 billion loan from Microsoft (NASDAQ:MSFT). In addition, both Southeastern and Icahn have pushed for a deal in which current shareholders would have the option of contributing at least a portion of their holdings into a buyout, which the Blackstone proposal would allow. Although the exact proportions are unknown, the firm’s offer would leave a portion of Dell’s stock in the hands of the company’s public investors.
However, in a statement, seen by the Journal, the Dell special committee said members “remain convinced that the risks and uncertainties of a stand-alone public company are high and therefore continue to recommend a transaction that provides shareholders with the certainty of a significant and attractive cash premium.”