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Michael Dell should be able to keep his baby after all

April 19, 2013
April 19, 2013

After all the drama, Dell is basically back where it started before the pseudo-bidding war for the troubled PC maker began. The Wall Street Journal reported (and other outlets confirmed) that private equity firm Blackstone has decided to end its pursuit of the company. Blackstone was seen as the only plausible competitor to Michael Dell and Silver Lake Partners’ attempt to take Dell private. With Blackstone out, it looks like the founder will keep his company after all.

In February, Dell announced a sale to a group led by CEO Michael Dell, private equity firm Silver Lake and Microsoft for $24.4 billion, or $13.65 a share. Some Dell investors, including Southeastern Asset Management and T Rowe Price, objected to the price, which they deemed to be too low.

That gave an opening to other contenders, and Blackstone was among the suitors that submitted a preliminary offer. So did activist investor Carl Icahn, but his proposed deal was not seen as serious and was looked at as more of a negotiating tactic to get a special dividend or some other shareholder payment.

Still, it is rare for an announced buyout deal to face competition. The drama was heightened by the fact that former Dell executive Dave Johnson was leading Blackstone’s bid. The media churned out story after story about Michael Dell’s every move.

But Blackstone’s preliminary offer was never solid. The firm didn’t have committed financing; only a “highly confident” letter from Morgan Stanley. A deal this big needs multiple banks for financing, and most of them were already committed to Dell’s original deal. Blackstone also teamed up with smaller investment firms, which meant the buyout shop still needed others to raise the equity for a deal.

All the while, there were questions about why a company in a dying industry was being courted by multiple suitors. Michael Dell’s deal made sense because Dell is his baby, and in the structure of the buyout, he takes most of the risk. The upside for Blackstone was always in question.

Despite Blackstone dropping out, Dell’s original buyers still have some work to do. Icahn earlier this week agreed to limit his Dell stake to 10%, but he reserved the right to launch a proxy fight. Michael Dell and his partners may still need to increase their bid a bit to ensure that the deal doesn’t face any additional opposition. But with Blackstone gone, Dell, Silver Lake and Microsoft can breathe a sigh of relief.

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