Dell drama takes new twist with 2 new buyout bids

Published on NewsOK Modified: March 25, 2013 at 4:03 pm •  Published: March 25, 2013
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Other analysts fault Michael Dell for not reacting more swiftly to a computing shift unleashed by the 2007 introduction of Apple Inc.'s iPhone and the 2010 release of Apple's iPad. Those products ushered in an era of powerful and elegantly designed mobile 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 its price of $24 when Michael Dell returned for his second stint as CEO in early 2007.

Michael Dell, who would contribute 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't have to worry about catering to Wall Street's fixation on short-term earnings and revenue growth.

Icahn, Blackstone and other current Dell shareholders also believe the company can bounce back. They just don't want to see Dell sold at a perceived discount that would deny existing 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 of Dell stock, leaving about 900 million of the existing shares still on the market. If Icahn didn't spend all the money earmarked for buying 58 percent of the outstanding stock, the remaining amount would be distributed in the form of a special dividend. Icahn said he and his affiliates currently own about $1 billion worth of Dell's stock.

Blackstone's proposal doesn'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 Nasdaq exchange. The New York firm said it hopes to team up with Michael Dell and also hopes to work with other major company shareholders, including Southeastern Asset Management and the T. Rowe Price Group. Both of those shareholders, who combined own nearly 13 percent of Dell's stock, oppose the offer currently backed by Michael Dell.

In a letter to Dell's special committee, Blackstone predicted its bid would be more "compelling" than the deal proposed by Michael Dell and Silver Lake.

If the deal with Michael Dell and Silver Lake falls apart, they would be owed a $180 million breakup fee.

The flexibility of the two new bids appeals to Bill Nygren, manager of the Oakmark Fund and affiliates, which owns about 25 million shares of Dell stock.

"Given the wide range of estimated values for Dell shares, if all else is nearly equal, we believe a proposal is superior if it allows investors who want to remain invested in Dell the opportunity to do so," Nygren said.

Dell shareholders who choose to retain some of the company's stock will be assuming the risk that things could get even worse if the turnaround plan flops and the sales in the slumping PC market deteriorate even more.

Although Dell has expanded into business software, technology consulting services and storage products, about 70 percent of its revenue remains tied to PCs and peripheral products, estimated Sterne Agee analyst Shaw Wu. That's one of the main reasons Dell's stock price had slipped below $10 before talk of a buyout began swirling earlier this year.

"What is going on now is quite good for Dell shareholders," Wu said. "It's a bit like a bailout."

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