March 25, 2013 / 12:42 AM / 6 years ago

Icahn opens door to Blackstone tie-up on Dell bid

(Reuters) - Two of the most prominent U.S. investors could upset Michael Dell’s $24.4 billion buyout bid for Dell Inc, after billionaire Carl Icahn opened the door to an alliance with Blackstone Group to wrest control of the computer maker from its founder.

Icahn said on Monday he has started preliminary talks with Blackstone. Both sides have made bids that could be superior to the offer on the table from Michael Dell and private equity firm Silver Lake.

The backroom negotiations show how what started as Michael Dell and Silver Lake’s plan to take the PC maker private could turn into a months-long process.

Icahn has proposed paying $15 per share for 58 percent of Dell. Blackstone has indicated it can pay more than $14.25 per share. The Silver Lake group offered $13.65 per share for all of Dell.

Dell and Silver Lake declined comment. Blackstone did not respond to requests for comment.

Icahn, who owns a $1 billion stake in Dell, said both his and Blackstone’s offers give the company’s largest investors what they wanted most - the ability to retain publicly traded shares of Dell.

Southeastern Asset Management, Dell’s largest independent shareholder and one of the most vocal opponents of the Silver Lake plan, said it was pleased about that prospect, as well as the higher offers.

Another investor, Bill Nygren, co-manager of the Oakmark Fund, added, “Given the wide range of estimated values for Dell shares, if all else is nearly equal, we believe a proposal is superior if it allows investors who want to remain invested in Dell the opportunity to do so.”

The outcome of the auction would determine the future of Dell, which was regarded as a model of innovation as recently as the early 2000s but has struggled to make up for declining market share of the global PC market.

A source earlier said that Dell had slashed its internal forecast for fiscal 2013 operating profit to about $3 billion - down sharply from the $3.7 billion it had predicted previously.

Dell’s shares closed up 2.6 percent to $14.51 on Monday, indicating investors expect a deal to be done at a price higher than the Silver Lake bid. Earlier in the session they touched $14.64, the stock’s highest level in 10 months.

“We continue to believe a higher bid than the current $13.65 per share offer will likely be offered but, based on our assumptions, a $15 per share bid may be a threshold,” Wells Fargo Securities analyst Maynard Um said in a note.

“We believe a higher Silver Lake/Dell bid might still be a more attractive and strategic option, assuming information regarding the public stub and financial services sale is accurate,” he said.

Late on Sunday, two sources close to the matter said that the Silver Lake group had no plans yet to increase or amend its offer until Dell’s special committee comes out with a ruling on the rival proposals.

Michael Dell Chairman and CEO of Dell Inc. arrives at the launch event of Windows 8 operating system in New York, October 25, 2012. REUTERS/Lucas Jackson


As part of his deal with the special committee of Dell’s board that is running the auction process, Michael Dell has to explore the possibility of working with third parties on alternative offers. On Monday, Dell said he had reaffirmed that commitment.

Still, Michael Dell is very concerned that Blackstone’s offer would dismantle the PC maker he founded in 1984, two people close to Michael Dell said. The founder is worried that the buyout firm’s plans would be inconsistent with his strategy to reinvest in the company, the sources said.

Michael Dell is planning to meet with Blackstone to discuss the private equity firm’s bid, two other sources familiar with the situation said.

Blackstone made no mention of asset sales in its preliminary offer. But people familiar with the matter have told Reuters that Blackstone has considered a potential sale of Dell’s financial services business as part of its turnaround plan.

Michael Dell’s role also remains unclear in a Blackstone-led deal. The buyout firm has already made an unsuccessful push to recruit Oracle Corp President Mark Hurd to run Dell if it takes over the company, one source familiar with the situation said last week. {ID:nL1N0CD0MI]

A number of issues remain to be addressed, a separate person familiar with the matter said on Monday of Michael Dell. Among them, what Michael Dell would do if a buyer wanted to sell a business and he did not, the source said.

Potential buyers are likely to want to sit down with Michael Dell to discuss his plans for a privately held Dell Inc in more detail, the source said, adding that Blackstone had not done so yet.

A Dell laptop computer is seen in New York August 26, 2008. REUTERS/Brendan McDermid

Switching bidding allegiances could preserve an affiliation with the company for Michael Dell, who founded the technology giant at the age of 19 with just $1,000.

Under the Silver Lake plan, he planned to contribute his roughly 16 percent share of Dell’s equity to the deal, along with cash from his investment firm MSD Capital, and remain CEO of the company. Silver Lake is putting up $1.4 billion.

Additional reporting by Nadia Damouni and Jessica Toonkel in New York and Sayantani Ghosh in Bangalore; Writing by Ben Berkowitz; Editing by Paritosh Bansal and Andrew Hay

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