By Poornima Gupta and Soyoung Kim
SAN FRANCISCO/NEW YORK, March 25 Michael Dell
likely couldn't have known when he proposed taking his company
private last year that he would trigger a three-way contest
between two private equity giants and one of Wall Street's most
aggressive activist investors. The outcome of that battle now
hinges on the billionaire Texan.
Few predicted a bidding war for a company struggling to
re-model itself as its core market declines - let alone one that
pushed its value above $24 billion. Behind the scenes, a
less-public tug-of-war is emerging, centered on the 47-year-old
Michael Dell, backed by Silver Lake Partners LP, is the
biggest wild card now in separate buyout attempts by Blackstone
Group LP and billionaire Carl Icahn, analysts said. Both
have proposed offers for the company that appear to trump his
$13.65-a-share bid, at least on paper.
But with Michael Dell owning roughly 16 percent of the
company, any hostile takeover where the founder is not given a
starring role in the new company could mean an unhappy major
shareholder second-guessing its strategy from the sidelines.
On the other hand, if he decides to sell to Blackstone or
Icahn, it could unnerve investors by giving the impression he
doesn't see any longer-term upside for the company in that deal.
Blackstone and Michael Dell plan to meet soon, two sources
familiar with the situation told Reuters on Monday. Blackstone
is expected to negotiate very specifically Michael Dell's future
role - and how much say he will end up with, analysts said.
Neither Blackstone nor Icahn has indicated what role they
envision for him, and it's unclear what Blackstone will want of
the CEO. But a third source close to the matter said the private
equity outfit has considered selling the company's financing arm
- which extends loans to PC buyers - to help bankroll the deal.
That has inspired speculation Blackstone is pondering hiving
off Dell's parts - a breakup that would fly in the face of the
founder's intention of re-investing in, and saving, his company.
Blackstone and representatives for Michael Dell declined to
Former Dell strategy chief Dave Johnson, now leading the
Blackstone camp, could prove instrumental in dealings with the
billionaire. His ex-boss has credited Johnson for putting in
place a solid M&A strategy, and they parted on amicable terms,
two other sources familiar with the situation say.
"At the end of the day, he's going to want to have a say,
whoever wins," said a separate source close to the deal. "He's
made himself into more of a free agent."
"He's going to play around a little bit now and see what his
position would be with each person."
As part of his deal with the Dell special committee running
the auction process, Michael Dell has to explore the possibility
of working with third parties on alternative offers.
Circumstances don't appear to favor a quick deal. The Texan
native is very concerned that Blackstone's offer would dismantle
the company, and that its vision is inconsistent with his own,
two other people close to Michael Dell told Reuters on Monday.
Blackstone said in a letter to Dell's board that it would
encourage but "not require" that the CEO roll over his equity.
"The real question is, if Blackstone wins, what they do with
(Michael) Dell," said Steven Kaplan, a University of Chicago
professor of entrepreneurship and finance. "They probably, other
things being equal, would prefer him to roll over his equity."
To be sure, the company founder's sway in the entire
deal-making process has been diminished somewhat by concessions
he made, in return for having the company review his joint
buyout proposal with Silver Lake.
The CEO has entered into a "voting and support" agreement
with Dell's board as part of his buyout offer, which ensures
that he will vote the same ratio of his total shares, and in the
same way other non-affiliated shareholders decide to vote, if a
rival offer is put on the ballot. That means that if 80 percent
of shareholders choose to vote for the deal, then he himself
needs to vote 80 percent of his own stake for the deal.
But the CEO has something in his favor - no one is deemed to
know the company better than the man who started it from his
dorm room in 1984 and built it into the world's No. 3 PC maker.
Blackstone, prior to indicating its interest to Dell's
board, had made aggressive overtures to recruit Oracle Corp
President Mark Hurd to run Dell if it takes over,
sources said. Hurd said on Monday in Japan that he was happy at
Oracle and was not interested.
Michael Dell "can be an asset or a risk, depends on how he
ends up playing," said Roger Kay, President of Endpoint
Technologies Associates, which has a consulting relationship
with Dell. "Any deal where he's not the CEO is riskier."
A new CEO brings uncertainty to the company, setting back
its attempted transformation - already years in the making -
into an enterprise-services provider, he said.
The last time Dell was sidelined, in 2004 when he handed the
reins to long-time executive Kevin Rollins while remaining
chairman, the company embarked on a steady decline, forcing
Dell's return a few years later.
In three years, Dell went from a company that was firing on
all cylinders to losing market share, a major battery recall,
disappointing financial results and investigations into the
The best-case scenario could be if the CEO remains a major
shareholder with the new company, said David Larcker, a
professor at Stanford University's graduate business school.
"You would think he will have a serious impact on the
strategy," he said. "That might be a good thing."
Most analyst and experts don't expect him to quit a company
he founded at age 19. He could, however, do so if whatever
eventual plan for Dell's future is too much of a departure from
the one he has chalked out.
"It may not be a large possibility but it may happen," Kay
said. "There could be some midnight or 3 a.m, where he could
just throw in the towel and say 'you guys take it.'"