Did These Numbers Scare Blackstone Away From Dell?

The controversy over Blackstone’s (NYSE:BX) interest in Dell (NASDAQ:DELL) — once rumored to be a charade — is over; sources informed Reuters that the investment firm has ended its pursuit of Dell and withdrawn its bid.

Evidenced by the plummeting shipments of personal computers reported by research firms IDC and Gartner in the past few quarters, trends are changing, consumers are preferring mobile devices over traditional PCs, and the industry is struggling. After Blackstone first submitted a letter last month announcing that it planned to make a formal bid of $14.25 per share for Dell, The New York Times noted that deal smelled of a charade. That Blackstone expressed interest in Dell when so many other prospective bidders passed prompted the Times to ask: “What did [Chief Executive Officer] Mr. Schwarzman see that all of the other prospective bidders must have missed?” As an answer, the publication stated that what he saw “remains a mystery.”

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When private-equity firm Silver Lake and founder and Chief Executive Officer Michael Dell first made an offer to take the struggling PC-maker, the board required a “go-shop” period to avoid giving the appearance of a conflict of interest. Many shareholders criticized the proposal, arguing that the $24.4 billion, or $13.65-per-share, deal severely undervalued the company. But very few offers were made during that 45-day period, a fact that significantly reduced the likelihood that Michael Dell’s proposal was a steal and made Blackstone’s offer surprising…

In withdrawing its offer, Blackstone cited the unprecedented 14 percent drop in PC sales in the first quarter of 2013 and a lowered earnings forecast by Dell. One source told Reuters that the company saw operating income drop from $3.7 billion to $3 billion in the current fiscal year.

Dell still has a preliminary, $15-per-share offer from activist investor Carl Icahn on the table, which has presented a challenge to the company’s deal with Silver Lake. He took a nearly 5 percent stake in the company and opposes Mr. Dell’s buyout proposal as it would make Dell a private company. Both Blackstone and Icahn offered alternatives that would keep part of the company public, while saddling the company with debt. However, analysts believe that Icahn’s chances of presenting a successful rival offer is slimmer than Blackstone’s. Although there is one factor working in Icahn’s favor; the deal with Mr. Dell and Silver Lake faces significant opposition from several Dell shareholders, including Southeastern Asset Management, with its 8.4 percent stake.

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On Tuesday, Icahn agreed not to buy shares that would give him more than a 10 percent stake until the takeover process is completed or forge deals with other shareholders that would bring their collective ownership to more than 15 percent. But he did say in statement seen by Reuters that the agreement did not prevent him from embarking on a proxy fight.

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