Dell: As Blackstone, Icahn circle, is there 'significant upside' left?

Dell: As Blackstone, Icahn circle, is there 'significant upside' left?

Summary: The competition is heating up over which investors will acquire the U.S. technology company. Is it worth the attention? A look at the proposals.


Last month, Dell agreed to a $24.4 billion deal to be acquired by founder Michael Dell and Silver Lake Partners.

But the American technology company has since received two alternative takeover proposals, according to a Wall Street Journal report -- one from activist investor Carl Icahn, and the other from a private equity fund managed by Blackstone Group.

Those preliminary proposals were made public today.

Highlights from the Blackstone letter:

"We believe there is significant upside in the Dell businesses, we see significant upside in the value of Dell’s shares, and our proposed transaction structure (described below) will deliver significantly greater value to your shareholders than the value agreed to in the Merger Agreement."

"We are prepared to enter into a definitive agreement to acquire Dell in a leveraged recapitalization transaction where shareholders could choose to receive either all cash or stock (subject to a cap), in each case valued in excess of $14.25 per share, representing a Superior Proposal to the $13.65 cash purchase price agreed to in the Merger Agreement."

The upsides: a higher price per share for shareholders electing to receive cash; a "shareholder-friendly structure" with the ability to choose cash or stock; "leveraged upside" for shareholders who elect to remain as shareholders. The proposal expires on Thursday at 5:00 p.m. New York time.

You can read the full letter here.

Highlights from the Icahn letter:

"We believe that you will agree that Icahn Enterprises is well able to provide the $1 billion cash equity capital (in addition to its existing $1 billion stock position in Dell), and that Mr. Icahn and his affiliates other than Icahn Enterprises are well able to provide the additional $3 billion cash equity capital, contemplated in this Acquisition Proposal, which constitutes an aggregate $5 billion equity commitment."

"Although we are well known for the performance of our investment activities, over time we have found that our greatest returns have come from the control and ownership of portfolio companies."

The proposal: a $5 billion equity commitment in which Icahn purchases $2 billion of the surviving company's shares for $15 each, as well as offers another $2 billion in cash equity financing. That doesn't include the 4.6 percent stake he already has in Dell.

You can read the full letter here.

In sum: both Blackstone and Icahn's proposals value the company higher than the Dell-Silver Lake bid, but each's terms vary in how much financial flexibility they allow the company.

The persistent question through all of this activity: is the company worth it?

Is there really "significant upside" to Dell's businesses? (Does Mark Hurd know something we don't?) Or are these rival bids just a ploy to profit from the company's instability?

Outgoing Reuters editor Peter Lauria hit it on the head this morning:


(The link in his tweet, if you're interested: a solid Reuters overview of the proposals.)

Michael Dell is reportedly preparing to sweeten his original proposal in response to the bids; he gets one shot to do so during this period. But you've really got to wonder if there's any room left for the company to turn around its fortunes.

More on ZDNet:

Topic: Dell

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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  • Nope - Dell is circling the drain

    They are pretty much worthless. Their computers are junk and have been since Mikey started the company. Their quality is declining, sales are declining and they are trying to be IBM but with no success or proven track record.

    So, Dell should just close up and give the $$ back to the shareholders. We won't miss them at all.
    • What if they could make a good PC

      Dell's problem has always been quality. Everything they have ever shipped, ever, has been a piece of junk, ever. But if they could maintain their low prices and high specs while keeping their machines from (in my multiple experiences) literately catching fire, then they might find that their computers could figuratively catch fire again.

      They do know how to make nice *looking* equipment.
      x I'm tc
    • Well...let me tell you this about that.

      I oversee hundreds of Dell computers in my college a our university, and 10 Lenovo ThinkCentres (which were purchased by my predecessor), and the Lenovos have given me nothing but headaches. Constant maintenance, whereas the Dells have been about 99.9% reliable.

      I'm very glad Dell isn't "...trying to be IBM..."...Lenovo now, actually.

      I just afraid that if Ichan gets his slimy paws on Dell, he will gut the company, and sell off the bits to make himself a huge profit, just as he has done with countless other companies.

      He has absolutely no feelings for the people who work for the companies he raids, he is solely in it for the money he can pull out of a company, and put in his own pocket.

      He is a dirtbag of the highest order.
      • You've Nailed It Precisely

        I've installed and serviced Dells nearly since Mike was still working out of his dorm room and I've had far less trouble with them (and their [North American] "Pro Support" tech support guys) than HP, Compaq, Toshiba, Sony and IBM/Lenovo put together. I also use Dell exclusively as my personal computers with minimal problems (I just retired one that was 12 years old and still ran like a top); I eat my own dog food, to quote an old IT expression. As far as ol' Carl Icahn goes, that's what I've always heard about him but I have no direct personal knowledge. He's a corporate rabble-rouser, as far as I'm concerned...
      • If you think Lenovo

        If you think Lenovo is the 'IBM' he's talking about, you need to get in tune with the industry.

        There's a good reason IBM got out of the PC business and is focusing on infrastructure & services (infrastructure means servers, storage, core business apps based on Websphere, DB2, etc).

        IBM's BladeCenter and now Pure System solutions have been untouchable by Dell. Dell's entire business strategy to get into enterprise solutions & services has been to buy it all in a crazy rush and try to shove everything together into a solution that is nowhere near as mature as what IBM brings to market. Just look at their server & storage solutions vs those offered by IBM or HP.

        THAT is what Dell is trying, and failing, to be about. Nobody cares what hardware is on the desktop anymore. Desktops are common commodities, just like phones.
  • LBO

    the LBO model, all too often, involves loading the company with debt, richly rewarding the principal players, and leaving the company a bankrupt carcass. I would prefer to see someone interested in making the company succeed gain control.
  • If I were Michael Dell

    I'll take your offer Carl, thanks for all the dough and good luck buying a lemon.
    Alan Smithie
  • Dell as corporate PCs...

    Never has seen a consumer Dell but Dell excels at making corporate devices. Removable hard drives and memory, expandable video for laptops, etc. They are very user repairable. Coupled with that their corporate service plans, that is their high point.

    With that said, we have moved from Dells to HP ultrabooks due to build quality and just looking nice.
    Rann Xeroxx
  • Not Post-PC, But Post-Windows Era

    The basic problem with the whole Windows PC business is that the profits are all completely skewed: while Microsoft and Intel continue to rake it in with their obscene profit margins, dwindling prices have meant that the OEMs are now left with nothing but scraps to fight over. This is why they are reluctant to take risks and try new innovative things in Windows PCs: the potential gains just aren't worth it.

    As a result, it is left to Microsoft and Intel more and more to try to take leadership. Intel is practically making its own PCs, by controlling the whole Ultrabook™ concept so closely, while Microsoft has dropped any pretense and is making PCs for real.

    Of course, this just delaying the inevitable. The innovative vendors are discovering rich new pickings in the Android market, where there is no single company with the level of control equivalent to either Intel or Microsoft. This is why we are seeing such a breathtaking variety of new Android-based products emerging at such a blistering pace. Windows is yesterday, Android is today.

    And tomorrow? We'll just have to wait and see...