Dell’s Big Warning to Shareholders

Dell Inc. (NASDAQ:DELL) has warned in a 274-page preliminary proxy statement to its shareholders that the buyout offer from its Chairman, CEO and Founder Michael Dell and private equity firm Silver Lake Partners is the best proposition the company’s board has explored. Mr. Dell’s $24.4 billion buyout proposal would turn Dell Inc. into a privately held company. Two other deals on the table for Dell are an offer from investment mogul Carl Icahn and an offer from private equity firm Blackstone Group. However, Dell’s statement indirectly said both of those others would be risky, according to Reuters.

Meanwhile, The Wall Street Journal has reported that Mr. Dell met last week with Blackstone Group while acting as Chief Executive of Dell. Both Mr. Dell and Blackstone declined to comment on the meeting. The fate of Mr. Dell remaining as CEO hangs in the balance if someone other than himself and Silver Lake Partners buys a large portion of Dell. Further complicating matters is Mr. Dell’s current 15.7 percent ownership of Dell, which makes him the company’s second largest shareholder.

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Icahn’s proposal is that he would pay $15 per share for 58 percent of the company. Blackstone’s proposal indicates it would pay more than $14.25 per share. However, both proposals would keep Dell a publicly traded company and saddle it with debt. Mr. Dell and Silver Lake’s proposal would be all-cash, pay $13.65 per share and take Dell private.

The statement from Dell said, “Even when taking into account the certain value distributed to stockholders, (a leveraged recapitalization) would be unlikely to result in an aggregate value exceeding the $13.65 per share merger consideration and would present a number of risks and challenges.” The $13.65 per share mark is important because that is what the proposal from Mr. Dell and Silver Lake would pay per share. Mr. Dell and Silver Lake want to take the company private because they believe that the restructuring necessary to keep it competitive would be hampered by it being subjected to the whims of the stock market. Dell itself believes that the debt it would incur from Icahn or Blackstone’s proposals would make this restructuring harder as well.

Boston Consulting Group previously carried out an independent analysis for Dell that concluded that the company’s revenues will continue slipping every year to 2016.

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Other offers that have been floating around include an unnamed party expressing interest in acquiring Dell’s financial services business. However, the report Dell released concluded that this would not be in the best interest of the company. Mr. Dell is concerned that the buyout plans other than his own would end up dismantling the company piece by piece.

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