Dell: Blackstone, Icahn bids may be superior to buyout

Dell, maker of the XPS Ultrabook shown during Dell, maker of the XPS Ultrabook shown during the 2012 International Consumer Electronics Show, has received a letter from stockholder Carl Icahn proposing a leveraged recapitalization instead of a move to go private. Photo Credit: AP

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Dell Inc. said it received bids from Blackstone Group LP and Carl Icahn that may be considered superior to Michael Dell's buyout plan, putting increased pressure on the founder to sweeten his bid for the personal computer maker.

The special committee running the go-shop process has determined that both proposals could reasonably be expected to result in superior offers, Dell said in a statement today. Michael Dell is willing to work with third parties on the alternative plans, the company said.

The unexpected challenges to the original bid, which came as the computer maker struggled to catch up with a new wave of nimbler competitors in mobile computing and business services, mean Dell and his partner Silver Lake may have to respond with a better proposal. Michael Dell, who founded the PC provider in his Texas dorm room in 1984, needs to ensure majority control so he can pursue his plan to retool the struggling company as a maker of data-center gear and software for corporations -- without the scrutiny of public investors.

Dell's special committee for the go-shop process, during which the buyout target can solicit competing offers after the initial agreement, hasn't determined that either the Blackstone or the Icahn proposal in fact constitutes a superior proposal, according to today's statement. While talks are ongoing, the committee continues to support the $13.65-a-share buyout proposed by the group led by Michael Dell and Silver Lake.

Dell rose 2.9 percent to $14.55 at 7:30 a.m. in New York before the markets opened, 6.6 percent above Michael Dell's offer.

At least five analysts surveyed by Bloomberg earlier this month saw the buyout group increasing the bid to as much as $14.90 to $15 a share.

'NEXT STAGE'

"Michael wants to play a role here," said Jayson Noland, an analyst at Robert W. Baird in San Francisco, who has a neutral rating on the shares. "This is his company -- it's been his life, his name's on the door and he'd like to be part of the next stage," he said. "The most likely scenario is Silver Lake and Michael Dell take this company private for something north of what they're currently offering."

At $15, Dell still would be going private at about 5.4 times earnings before interest, taxes, depreciation and amortization, the lowest multiple for a technology buyout larger than $1 billion, according to data compiled by Bloomberg.

CHALLENGED COMPANY

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For the 48-year-old chief executive officer, once part of a technology-industry pantheon that includes Microsoft Corp. co-founder Bill Gates and Oracle Corp.

CEO Larry Ellison, prevailing in a surprise takeover fight could help in the effort to restore Dell's reputation and performance. Once the world's largest maker of PCs, Dell has floundered as those machines have been eclipsed by tablets and smartphones from companies such as Apple Inc. and Samsung Electronics Co.

"Dell is the most challenged company in my coverage universe, and two-thirds of their business ships with a hard- disk drive attached," said Brian Marshall, an analyst at ISI Group in San Francisco, contrasting Dell's PC-related business to mobile devices that user faster forms of memory. "Two-thirds of their revenue is commoditized. People are very cautious and leery," said Marshall, who has a neutral rating on the shares.

Blackstone and Icahn submitted their proposals on March 22, the deadline of the go-shop period. Southeastern Asset Management Inc. and T. Rowe Price Group Inc., the company's largest outside investors, have said they would oppose the original buyout offer because it is too cheap.

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