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March 25, 2013

Michael Dell Deal in Jeopardy

Investor Icahn, Blackstone Group Submit Bids for PC-Maker

Dell CEO Michael Dell’s plan to take the PC-maker private with the help of global technology investment firm Silver Lake in a $24.4-million buyout is in jeopardy.

Two new buyers have entered the fray: asset management firm Blackstone Group and outspoken investor and billionaire Carl Icahn.

A special committee of Dell’s board is evaluating both takeover proposals, a source told Reuters.

According to Reuters’ source, Icahn and Blackstone submitted the bids late last week and an announcement on if either offer is “likely to lead to a superior bid” could come as soon as today.

The special committee could, however, opt to take its time in coming to a decision, the source said.

Icahn is offering $15 a share for 58 percent of Dell, while Blackstone is offering more than $14.25 a share for an unspecified portion of the company, Reuters’ report revealed.

Michael Dell

Michael Dell

Dell and Silver Lake, with a $2-billion loan from Microsoft, has proposed Dell stockholders be paid $13.65 in cash for each share of Dell common stock held. The price represents a premium of 25 percent over Dell’s closing share price of $10.88 on Jan. 11, the last trading day before rumors of a possible going-private transaction were first published.

The two new bids means a quick resolution regarding Dell’s future is unlikely. With three active bids to consider, the special committee is now in a ‘go-shop’ process.

The bid from Icahn is not a huge surprise. He has vocally opposed the deal brought forward by Michael Dell Feb. 5, saying it “is not in the best interests of Dell shareholders and substantially undervalues the company.”

Earlier this month, Icahn demanded a $15.7-billion special dividends pay out for investors. Icahn asked Dell to pay $9 a share in dividends, both from its own stockpile and by raising new debt, if the privatization deal was voted down.

He also accused Michael Dell of being a major beneficiary of the proposed deal.

“Our proposal provides Dell shareholders with substantial cash of $9 per share and the ability to continue as owners of Dell, a stock that we expect to be worth approximately $13.81 per share following the dividend,” Icahn wrote in a letter to the company’s board. “We believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright. We see no reason that the future value of Dell should not accrue to ALL the existing Dell shareholders — not just Michael Dell.”

Icahn is not alone in his derision for Michael Dell’s proposal.

Southeastern Asset Management, Dell Inc.’s largest investor has also said the proposed buyout courtesy of Michael Dell and his partner Silver Lake undervalues the company. The firm also demanded Dell provide a list of the company’s other stockholders in an apparent bid to rally support among other shareholders in an effort to block the deal.

Dell stock has lost more than 50 percent of its value since January 2007 when Michael Dell returned to his role as CEO, taking over from Kevin Rollins who resigned after four out of five quarterly reports failed to meet expectations.

Going private would better enable Michael Dell to change the company’s strategy and cut more jobs. Michael Dell, who owns approximately 14 percent of Dell’s common shares, would continue as CEO. According to a company press release, he would maintain a “significant equity investment” in Dell by contributing his shares to the new company, as well as making a substantial monetary investment.

Although Dell would no longer have to answer to shareholders, it would be shouldering significant debt to Microsoft as well as Bank of America Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.

“I believe this transaction will open an exciting new chapter for Dell, our customers and team members,” Michael Dell said in a statement last month. “We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise.





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