Blackstone, Icahn Set up 3-Way Battle to Buy Dell

Getty Images

Dell appeared tohave received competing offers following a $24.4 billionagreement last month to be taken private by its founder andprivate equity firm Silver Lake, setting up a tug-of-war for theworld's No. 3 PC maker.

Blackstone Group LP submitted an indicative andpreliminary offer ahead of the expiration of a "go-shop" periodon Saturday that allowed Dell to explore other options, a personfamiliar with the matter said.

The buyout firm has not yet arranged bank financing, thoughit has put potential lenders on stand-by, according to a secondsource familiar with the matter.

Billionaire investor Carl Icahn, who has built up a minoritystake in Dell and opposes the offer by founder Michael Dell andSilver Lake, also made an offer, according to the Wall StreetJournal.

Details of the competing offers were not immediately known,but any rival bid would have to prove more appealing than the$13.65-per-share offer of Dell's founder and his private equitypartner.

Blackstone is offering between $13.65 and $15 a share -trumping Michael Dell and Silver Lake's $13.65 - in a deal thatwill invite shareholder participation, the Wall Street Journalreported. Blackstone has approached a number of firms, includingGE Capital, about financing for the deal, the second sourcefamiliar with the situation said. Dell shares closed Friday at$14.14.

The firm could finance the deal by selling a piece of Dell'sbusiness, the source said.

Any rival bid could use a "public equity stub," which givesexisting shareholders the option to keep a stake in the companyafter a buyout, a person familiar with the matter said earlierthis week.

That person also told Reuters that the company had slashedits internal forecast for fiscal 2013 operating profit toapproximately $3 billion - down sharply from the $3.7 billion ithad predicted previously. The source added that more detailswill be illuminated in a proxy filing next week.

Blackstone declined to comment while an Icahn representativedid not return calls or an email requesting comment. Dell alsodeclined to comment on the profit revision or the offers.

It was not immediately clear if other parties had submittedoffers for Dell.

Michael Dell is trying to re-focus his company on enterprisecomputing services with the PC market in decline - a difficulttransformation that Wall Street analysts have said is betterexecuted away from public market scrutiny.

His proposal, which requires approval from a majority ofshareholders excluding Dell himself, would end a 24-year run onpublic markets for a company that was conceived in a collegedorm room and quickly rose to the top of the global personalcomputer business - only to be rendered an also-ran over thepast decade as PC prices declined and customers moved to tabletsand smartphones.

But major shareholders, including Southeastern AssetManagement and T. Rowe Price, have protested that his offerundervalues the company and pledged to vote against the deal,which requires a majority of shareholders, excluding thefounder, to pass.

Who Will Lead?

Backstone had made an aggressive push to recruit OracleCorp President Mark Hurd to take Michael Dell's placeas chief executive, a person familiar with the situation said onWednesday. But a source familiar with the situation said Hurdhas no intention of leaving Oracle.

It's unclear what Blackstone intends to do with the companyshould it submit a bid and win. Analysts have speculated that abuyer could either sell off assets - such as the underperformingPC division that still accounts for about half of revenue - orcomplete the overhaul Michael Dell began and put the companyback on a higher-margin growth track.

The New York-based private equity firm conducted duediligence on Dell ahead of the March 22 expiration of aso-called "go-shop" period, which offered interested parties theopportunity to outbid Michael Dell's consortium.

Michael Dell returned to the company as CEO in 2007, after abrief hiatus but has been unable to engineer a turnaround thusfar. Analysts said Dell could be more nimble as a privatecompany, but it will still have to deal with the same difficultmarket conditions.

Dell executives have said they intended to stick to astrategy of expanding its software and services offerings forlarge companies, with the goal of becoming a full-serviceprovider of corporate computing services in the mold of highlyprofitable IBM . The company founder has not said what hewould do differently with his company a private entity.

Dell was regarded as a model of innovation as recently asthe early 2000s, pioneering online ordering of custom-configuredPCs and working closely with Asian component suppliers andmanufacturers to assure rock-bottom production costs. But itmissed the big industry shift to tablet computers, smartphonesand high-powered consumer electronics such as music players andgaming consoles.

As of 2012's fourth quarter, Dell's share of the global PCmarket had slipped to just above 10 percent from 12.5 percent ayear earlier as its shipments dived 20 percent, according toresearch house IDC.

(Writing by Edwin Chan; additional reporting by Susan Kelly;editing by Gunna Dickson and Jackie Frank)