Reports: Blackstone Competing To Take Dell Private

Michael Dell

Will Investment firm Blackstone Group scupper Michael Dell’s plans for his firm?

Michael Dell’s already rocky road to take his namesake company private is getting more challenging, with reports that investment firm Blackstone Group is considering making its own bid to buy it.

Blackstone reportedly is one of several organisations – others include PC rivals Hewlett-Packard and Lenovo – that have looked over Dell’s financial records as officials mull a bid to compete with the $24.4 billion (£16bn) offer on the table by a group led by Michael Dell and equity firm Silver Lake Partners, with a little help from Microsoft.

Shareholder resistance

Michael Dell already was getting resistance to his efforts to buy the company and take it private from several large shareholders that felt that the $13.65-per-share price greatly undervalued the company, benefiting the buyers at the expense of investors.

michael dell 1989Now he and his partners may have to deal with at least one competing bid.

When Dell executives on 5 February announced the plans for the leveraged buyout, the deal included a “go shop” period, allowing the special committee of the board of directors until 22 March to consider competing bids and, if necessary, go beyond that date to negotiate any superior offers.

A 19 March Bloomberg report, citing unnamed “people with knowledge of the matter”, said Blackstone may head up a group that would bid on Dell, which currently is the world’s third-largest PC maker, behind HP and Lenovo.

Such a move would put pressure on Michael Dell and Silver Lake Partners to increase the amount of their own offer, something they have been reluctant to do despite harsh criticism from some shareholders.

Officials with Blackstone have not made a decision whether to make a bid, according to Bloomberg, though its interest is more serious than that of HP and Lenovo.

CEO alternatives

A 20 March report in said that Blackstone officials would prefer to have Michael Dell in as part of their deal, but has begun pursuing other possible chief executives to replace him if that doesn’t work out.

According to Fortune, which did not name any sources, Blackstone has been aggressively pursuing former HP chief executive Mark Hurd, currently a president with Oracle, as a possible chief executive for Dell.

Another name being mentioned is former Compaq and MCI chief executive Michael Cappellas who currently is board chairman for VCE, a joint venture of EMC, VMware and Cisco Systems that focuses on cloud computing infrastructure.

Since returning to Dell as chief executive in 2007, Michael Dell has led an aggressive effort to transform the company from a PC and server box maker into an enterprise IT services vendor, offering everything from servers and storage technology to networking gear, software and services. Dell has spent billions buying more than a dozen companies to build out its capabilities.

However, the company is still being hobbled by its reliance on a global PC market that is seeing sales slow as consumers and businesses turn their attentions to mobile devices, particularly smartphones and tablets.

Services shift

Analysts have said that by taking the company private, Dell executives will be able to accelerate their efforts away from the glare of Wall Street and the pressure of meeting quarterly financial numbers. In the $24.4 billion bid, Michael Dell, who holds almost 16 percent of Dell shares, would retain majority control of the company.

However, almost immediately after announcing the deal, some investors were panning it. Much of that criticism has come from Dell’s largest shareholders, including Southeastern Asset Management and T.

Rowe Price, which together hold about 13 percent of Dell shares and have argued for a price that is more than $20 per share. Some financial analysts have said they expect the price to eventually got as high as $15 or more per share.

The deal also has come under further criticism from activist investor Carl Icahn, who soon bought enough shares to bring his number up to 6 percent. Icahn, who has advocated that the company remain public and pay out a special dividend, reportedly also has been given access to Dell’s financial books.

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Originally published on eWeek.

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