Dell reboots takeover with Blackstone, Icahn offers

Dell said it has received a $14.25 a share takeover offer from Blackstone and a $15 a share deal from Carl Icahn.

By TheStreet Staff Mar 25, 2013 3:51PM

thestreet logoBy Antoine Gara

 

The biggest private equity buyout since the financial crisis has received a reboot. On Monday, Dell (DELL) said it has two new takeover offers -- that trump a proposed $13.65 a share deal the company struck with founder Michael Dell and private equity firm Silver Lake Partners in early February.

 

A special committee seeking a higher takeover price for Dell said a consortium of investors, led by the Blackstone Group (BX), have submitted a $14.25 a share offer that would allow Dell shareholders either to receive a cash payment at that value or continue to own their publicly traded holding. Francisco Partners and Insight Venture Management will participate in the Blackstone investor group.

Dell also received a $15 a share bid from Carl Icahn's holding company, Icahn Enterprises (IEP), which will roll the activist investor's $1 billion stock stake into a takeover and use a mix of stock, debt and financing from Dell's factoring business to fund the deal.

 

To be seen is whether the Michael Dell-led consortium will try to improve on their February 5th offer to take the struggling PC giant private.

 

That deal valued Dell's shares at $24.4 billion, and relies on over $12 billion in debt financing to go with an equity contribution from Michael Dell worth nearly $4 billion.

 

Top of a Dell laptop (© Bobby Yip/Newscom/Reuters)"We intend to work diligently with all three potential acquirers to ensure the best possible outcome for Dell shareholders, whichever transaction that may be," Alex Mandl, chairman of the Dell committee, said in a Monday statement.

 

The committee also noted Michael Dell has confirmed his willingness to work with third parties regarding alternative acquisition proposals.

 

According to the Blackstone-led group's offer, investment bank Morgan Stanley (MS) will lead debt financing for the takeover deal. However, the private equity firm didn't specify an exact financing need on its $14.25 a share offer.

 

Icahn Enterprises' offer seeks to acquire up to 58% of Dell's shares -- about $4 billion in cash and an additional $1 billion by way of the company's recently acquired stock -- for a total of about $5 billion in equity.

 

Remaining sources of financing will consist of $7.4 billion of cash currently available at Dell, $1.712 billion in new factoring receivables and $5.218 billion in new debt.

 

"We understand that this Proposed Merger contemplates less total leverage on the Surviving Company than under the February 5 Merger Agreement," Icahn Enterprises noted in its offer.

 

Southeastern Asset Management and T. Rowe Price, two of Dell's largest independent shareholders that opposed the initial $13.65 a share February deal, would need to roll over their share holdings into the surviving company under the Icahn Enterprises offer.

 

Icahn Enterprises is working with investment bank Jefferies.

 

"I would find the Icahn deal less attractive," said Howard Ward, chief investment officer at Gamco Investors, in a CNBC interview when asked to contrast the Blackstone and Icahn Enterprises offers disclosed by Dell.

 

"Given significant challenges facing the PC business (~50% of DELL's revenue) and a long transformation ahead, we would not anticipate the existing bidders (e.g., Silver Lake and CEO Michael Dell) to raise their offers meaningfully above competing offers, but wouldn't rule out an increase of their current bid to near the ~$15.00 range," Brian Marshall, an analyst at ISI Group wrote in a late Sunday note to clients.

 

"In our view, the emergence of new bidders helps limit downside to Dell stock in the near-term, but we see more long-term risk if no bid is ultimately approved due to deteriorating fundamentals in the PC business," added Marshall, who reiterated a neutral rating and noted minimal upside for those seeking to speculate on Dell's takeover process.

 

Competitor PC-makers Hewlett-Packard (HPQ) and Lenovo (LNVGY) were reported to have studied Dell's books in its so-called 'go-shop' process, however neither firm is mentioned as a participant in any offer for the company.

 

Dell shares were trading higher by over 3% to $14.61 in pre-market trading. The Round Rock, Texas-based company' shares have gained roughly 40% in 2013, amid takeover speculation.

 

Shares, nevertheless, have fallen over 14% in the past 12 months, indicating strains the company faces in the deteriorating PC market.

 

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