The twonew suitors pursuing Dell have a message for Wall Street: Don't allow MichaelDell to hoard potential gains from the expansion of the world's third largestPC maker into more profitable technology products and services.
Competing bidders CarlIcahn and the Blackstone Group LP are wooing Dell shareholders with an offer ofa little more money today coupled with the possibility of even bigger returnslater if the struggling personal computer maker can pull off the turnaroundenvisioned by its CEO and founder and a group of investors led by Silver LakePartners.
The new bidders alsopropose to maintain Dell Inc.'s status as a publicly traded company.
The long-awaitedchallenge to Michael Dell and Silver Lake began to unfold Monday with theannouncement that Icahn, a billionaire investor with a long history ofcorporate confrontation, and Blackstone, a major buyout firm, had submittedseparate alternatives in an attempt to scuttle a $24.4 billion sales agreementthat has been in place since Feb. 5.
If completed, theoriginal deal would end Dell's 25-year history as a publicly traded company,leaving it entirely owned by Michael Dell, Silver Lake and a handful of otherinvestors. The new bidders are taking advantage of a 45-day window that hadbeen left open for better offers.
Although the details arestill sketchy, both Icahn and Blackstone are offering to buy a portion of DellInc.'s outstanding stock at prices higher than the $13.65 per share thatMichael Dell and Silver Lake have proposed to pay. Icahn is offering $15 pershare for up to 58 percent of the company's existing stock, while Blackstone isoffering more than $14.25 per share in cash or stock for an unspecified numberof shares.
"We intend to workdiligently with all three potential acquirers to ensure the best possibleoutcome for Dell shareholders, whichever transaction that may be," saidAlex Mandl, the chairman of a four-person board committee overseeing the saleof the Texas-based company. For now, the committee is still recommending thedeal put forth by Michael Dell and Silver Lake, though they are acknowledgingthe new offers could end up being more lucrative.
Dell's stock gained 37cents, or 2.6 percent, to close Monday at $14.51. The shares have been tradingabove $14 most of this month, signaling that most investors expectedalternative bids to emerge.
Monday's developmentsheighten the uncertainty surrounding Dell, the world's third largest PC makerbehind Hewlett-Packard Co. and Lenovo Group. Dell's cloudy future could rattlesome corporate customers who may be more willing to do business with HP, Lenovoor other rivals. It also threatens to distract Dell's 111,000 workers at acritical time.
The bidding battle alsocould culminate in the departure of Michael Dell, who founded the companybearing his name in 1984 while still a teenager attending the University ofTexas.
In a statement, Dell'sspecial committee said Michael Dell is willing to work with other partiesbesides Silver Lake.
Getting Dell'scooperation will be crucial for either Icahn or Blackstone if they hope to gaincontrol of the company, predicted analyst Patrick Moorhead of Moor Insights& Strategy.
"It would be naiveto move forward without Michael Dell," Moorhead said. "He is the gluethe keeps the place together."
Other analysts faultMichael Dell for not reacting more swiftly to a computing shift unleashed bythe 2007 introduction of Apple Inc.'s iPhone and the 2010 release of Apple'siPad. Those products ushered in an era of powerful and elegantly designedmobile devices that are causing consumers and companies to spend less on PCs.The upheaval is crimping Dell's earnings and has left its stock well below itsprice of $24 when Michael Dell returned for his second stint as CEO in early2007.
Michael Dell, who wouldcontribute about $4.5 billion in cash and stock to finance his preferred deal,believes he will be in a better position to overhaul the company if he doesn'thave to worry about catering to Wall Street's fixation on short-term earningsand revenue growth.
Icahn, Blackstone andother current Dell shareholders also believe the company can bounce back. Theyjust don't want to see Dell sold at a perceived discount that would denyexisting shareholders the benefits of a potential comeback.
Under Icahn's proposal,his group would spend more than $15.6 billion to buy 1.04 billion shares ofDell stock, leaving about 900 million of the existing shares still on themarket. If Icahn didn't spend all the money earmarked for buying 58 percent ofthe outstanding stock, the remaining amount would be distributed in the form ofa special dividend. Icahn said he and his affiliates currently own about $1billion worth of Dell's stock.
Blackstone's proposaldoesn't spell out how much money it would spend to buy Dell's existing stock,nor does it estimate how much stock would remain trading on the Nasdaqexchange. The New York firm said it hopes to team up with Michael Dell and alsohopes to work with other major company shareholders, including SoutheasternAsset Management and the T. Rowe Price Group. Both of those shareholders, whocombined own nearly 13 percent of Dell's stock, oppose the offer currentlybacked by Michael Dell.
In a letter to Dell'sspecial committee, Blackstone predicted its bid would be more"compelling" than the deal proposed by Michael Dell and Silver Lake.
If the deal with MichaelDell and Silver Lake falls apart, they would be owed a $180 million breakupfee.
The flexibility of thetwo new bids appeals to Bill Nygren, manager of the Oakmark Fund andaffiliates, which owns about 25 million shares of Dell stock.
"Given the widerange of estimated values for Dell shares, if all else is nearly equal, webelieve a proposal is superior if it allows investors who want to remaininvested in Dell the opportunity to do so," Nygren said.
Dell shareholders whochoose to retain some of the company's stock will be assuming the risk thatthings could get even worse if the turnaround plan flops and the sales in theslumping PC market deteriorate even more.
Although Dell hasexpanded into business software, technology consulting services and storageproducts, about 70 percent of its revenue remains tied to PCs and peripheralproducts, estimated Sterne Agee analyst Shaw Wu. That's one of the main reasonsDell's stock price had slipped below $10 before talk of a buyout began swirlingearlier this year.
"What is going onnow is quite good for Dell shareholders," Wu said. "It's a bit like abailout."