Is Blackstone’s Bid For Dell a Charade?

Money ManA curious line hidden away in Dell’s (NASDAQ:DELL) 247-page proxy filing submitted to the U.S. Securities and Exchange Commission late last week has stirred up a perturbing question about Blackstone Group’s (NYSE:BX) proposed buyout bid for the company. Given the numerous contradictory turns the firm’s interest in the personal computer manufacturer has taken, analysts and industry commentators are now beginning to wonder whether the offer was merely a charade.

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The proxy filing stated: “The Blackstone consortium informed the special committee that it was not willing to proceed with its evaluation of the transaction contemplated” unless “it received an agreement from the company to reimburse the Blackstone consortium’s out-of-pocket expenses in connection with its evaluation of a possible transaction.”

Stephen Schwarzman’s Blackstone Group’s interest in Dell came as somewhat of a surprise, as The New York Times reported Tuesday. The firm submitted a letter two weeks ago announcing that it planned to make a formal bid of $14.25 per share for Dell, above the $13.65 offer to take the company private made by private-equity firm Silver Lake and founder and Chief Executive Officer Michael Dell.

In order to avoid giving the appearance of a conflict of interest, given Mr. Dell’s position as a company insider, the special committee of the company’s board that supervised the offer put in place a 45-day go-shop period in which the company could “actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals.” But, despite that effort, the idea that Mr. Dell’s low offer was given preferential treatment by the board has become “the running narrative,” noted the Times. This narrative was given a face by Barron’s, which published on the cover of its most recent issue a cartoon of Mr. Dell running away with a laptop under his arm, a visual that suggests he has tried to steal the company. The accompanying headline read: “Not So Fast, Michael.”

But over the past 45 days almost no other offers were made, a fact that significantly reduces the likelihood that Michael Dell’s proposal was a steal. And the scarcity of offers was not for lack of trying. According to the publication, Evercore Partners (NYSE:EVR) — the investment bank hired by the board to guard against any allegations of self-dealing by Mr. Dell — was promised a $30-million incentive if it could secure a higher buyout proposal. According to the proxy statement, Evercore approached “67 parties, including 19 strategic parties, 18 financial sponsors and 30 other parties” in that quest. Most were not interested, except for Blackstone.

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That Blackstone expressed interest in Dell when so many other prospective bidders passed prompted the Times to ask: “What did Mr. Schwarzman see that all of the other prospective bidders must have missed?” As an answer, the publication stated that what he saw still “remains a mystery.”

However, the facts remain; Blackstone told Dell that it would not consider making a bid unless Dell offered to pay the firm’s expenses, a figure that could run as high as $25 million. The PC-maker agreed to this condition, and just to make it fair, the company agreed to pay Silver Lake the same reimbursement cost. While agreeing to this demand from Blackstone will keep a second bidder lined up — thereby insulating the company’s special committee from accusations that it did not run a competitive process — the demand shows that the firm has little confidence that its offer will be chosen. And because of that condition, Blackstone’s bid looks like a charade.

Blackstone has yet to make an official offer for Dell, and, as of yet, has not even lined up the necessary financing. And, given that Blackstone will likely not embrace Mr. Dell as chief executive, the deal’s feasibility already seems like it is on shaky ground.

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