Private-equity firm Blackstone Group L.P. (BX), a late entrant
into the battle for control of computer maker Dell Inc. (DELL),
gained momentum in its pursuit on Monday, fueling the prospect of a
bidding war.
On Monday, a special committee of Dell board members said it
viewed a Blackstone proposal as potentially superior to the $24.4
billion take-private offer from Silver Lake Partners and founder
and Chief Executive Michael Dell. Investor Carl Icahn, who
separately is pursuing the Round Rock, Texas, company, said on
Monday he would review Blackstone's offer and may attempt to join
forces with the New York firm.
The bigger field cheered investors. Dell shares rose 2.6% to
$14.51 in 4 p.m. trading on Monday, its highest closing price since
May. "With three forces at work, we believe a higher buyout bid is
in the cards," wrote Brian White, an analyst at Topeka Capital
Markets.
Potential financing hurdles remain for both Blackstone and Mr.
Icahn, whose offer also was deemed potentially superior. Bankers
and industry experts say Blackstone should be able to tap a
substantial amount of funds from banks to help pay for the deal.
Banks have already committed funding to Mr. Dell's bid, giving his
group an advantage.
Mr. Dell possibly could put his shares towards Blackstone's bid.
Mr. Dell plans to speak to Blackstone, a person familiar with the
situation said, something he agreed to do under terms of the buyout
proposal. Blackstone's letter to Dell said it would "encourage" him
to roll his 14% stake into a deal.
For now, the two sides remain far apart. Mr. Dell's plan for the
company calls for increasing capital spending, keeping the company
whole and pushing for growth in emerging markets.
Mr. Dell opposes Blackstone's plan to sell the Dell finance unit
that provides loans to customers to buy its products, according to
a person familiar with his thinking. Blackstone's plan would sell
that unit, valued at around $5 billion, to help finance its
takeover, said people familiar with the situation.
If Blackstone's fundraising succeeds, observers said the offer
could have a shot at being viewed as superior to the management-led
buyout now on the table.
"The special committee's paramount duty is to maximize
shareholder value, that means getting the most cash as quickly as
possible," said Anthony Sabino, a professor at St. John's
University's Peter J. Tobin College of Business. Mr. Dell's "offer
per share is, in this context, substantially lower."
Blackstone said it would pay at least $14.25 a share to
shareholders who wish to receive cash and exit the company, versus
the $13.65 a share Mr. Dell and Silver Lake are offering. Its
proposal includes an option that Mr. Dell had been pilloried for
leaving out: allowing shareholders keep some piece of the venture.
Blackstone's proposal would cap the amount of shares the public
could hold.
Mr. Icahn's letter proposed paying $15 a share for 58.1% of
Dell, an offer he said would allow some existing shareholders to
retain their stake.
The willingness to allow shareholders to retain a stake could be
central to drawing in Dell's largest outside shareholder,
Southeastern Asset Management Inc., which spent the weekend
evaluating whether to join Blackstone's bid. Southeastern isn't
interested in working with Mr. Icahn, a person familiar with the
situation said. But the firm sees potential benefits in siding with
Blackstone, according to people familiar with its thinking.
Blackstone has enlisted Morgan Stanley to line up financing and
law firm Kirkland & Ellis LLP also is advising it.
Many of the world's biggest banks are already tied to Mr. Dell's
deal, which complicates matters for Blackstone but should not
prevent the firm from raising enough money to pursue any bid,
bankers said.
Blackstone's proposal would value Dell at $25 billion, though if
it leaves a portion of the company in public hands it wouldn't need
the full amount. For instance, Southeastern's public statements
have indicated it wants to retain its 8.4% stake in the computer
company.
J.P. Morgan Chase & Co. (JPM), with Wall Street's biggest
balance sheet, is advising Dell's special committee of directors
and Citigroup Inc. (C) is advising the buyout group; these banks
wouldn't participate in a competing offer, people familiar with the
situation said.
Other banks that are providing only financing would normally be
free to work with a competing bidder, though doing so may be
unappealing perception wise. Goldman Sachs Group Inc. (GS) is
advising the company.
That still leaves a significant pool of banks free to join any
competing offers. Morgan Stanley has committed to financing the
Blackstone deal, and the firm could tap non-U.S. banks,
particularly those based in Canada and Europe.
Mr. Icahn's proposal has Jefferies Group Inc. lined up on its
side.
The special committee on Monday said it continues to recommend
the deal it originally signed with Mr. Dell and Silver Lake, given
that neither Blackstone nor Mr. Icahn had yet delivered concrete
proposals. Blackstone and Mr. Icahn are expected to return with
firm offers, including whatever financing they can line up. But
there is no strict time frame for them to return with offers at
this point, according to people familiar with the deal terms. If
their offers are indeed deemed by the Dell board's special
committee to be superior, Mr. Dell and Silver Lake would be given
four days to match or top the new deal.
The committee defended its actions once again on Monday and is
expected to release this week the first set of documents that will
detail the steps taken to ensure the process for the sale was fair
and robust.
Those documents will lay out a picture to shareholders of a
struggle inside Dell to deal with slumping sales and change its
direction toward services and other offerings aimed at corporate
clients.
That transformation was expected to be continued when Mr. Dell
and Silver Lake took the company private. Mr. Dell told NPR this
month he hoped to make the business "even more founder led than it
was in its first few decades' and that the buyout was meant to keep
shareholders from taking on "all the risks that I and Silver Lake
will bear."
Mr. Icahn said in his letter he has a Dell stake worth $1
billion, about 4.6% of Dell's outstanding shares, and his offer
would include $5 billion in total equity. He also suggested he
would use $7.4 billion of Dell's own cash, $5.2 billion in new debt
and $1.7 billion in debt that is backstopped by Dell's
receivables.
-Shira Ovide and Drew FitzGerald contributed to this
article.
Write to Sharon Terlep and David Benoit at
sharon.terlep@dowjones.com and david.benoit@wsj.com
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