Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Will Dell's rival bidders entice Michael Dell?

March 25, 2013: 8:00 AM ET

Dell gets rival offers, but neither would really take the company private.

Dell

FORTUNE -- Dell Inc. announced this morning that it received two acquisition bids during its "go-shop" process, and that both "could reasonably be expected to result in superior proposals" to the $13.65 per share offer submitted in February by Michael Dell and Silver Lake Partners. Both deals, however, would include a public equity stub that would seem anathema to Michael Dell -- the founder and CEO whose interest in taking Dell private is centered around his disdain for how the company has been treated by public markets.

The first rival offer comes from The Blackstone Group (BX), which is working with smaller private equity firms Francisco Partners and Insight Venture Partners. It would pay $14.25 per share for Dell (DELL) and says that its equity commitments in excess of new equity committed in the Dell and Silver Lake bid. Of course, that's partially because Blackstone does not yet have any guarantee that Michael Dell would be willing to roll over his shares -- although Blackstone hopes that he will do so. That uncertainty underscores how this is an indication of interest rather than a binding bid, since Blackstone wouldn't commit itself before knowing how much financing is actually required and if it would have majority control -- let alone who the company's future CEO would be.

Blackstone also doesn't have any debt financing committed but says that it is working with Morgan Stanley (MS) and is confident it can line up the money. Worth remembering that $2 billion of the original offer comes in the form of a loan from Microsoft (MSFT), which is exclusively tied to Silver Lake on the deal (unless Silver Lake lets Microsoft amend the contract). Finally, Blackstone would allow existing Dell backers to choose cash or stock, leading to the aforementioned public stub.

The second bid comes from Carl Icahn, who has slightly modified his original dividend recap plan. He would put upwards of $5 billion in equity toward the deal (including rollover of his existing $1 billion stake) and would "assume" rollover from other large shareholders like Southeastern Asset Management and T. Rowe Price. All of this would get done at a $15 per share price, and also would include a massive public equity stub.

Icahn does not make mention of Michael Dell or his existing equity.

The next step will be public release of a detailed proxy statement from Michael Dell and Silver Lake, laying out a case for why their offer actually is superior at a lower price. That was scheduled for tomorrow or Wednesday, but the Blackstone and Icahn bids may complicate matters (or cause Michael Dell to add a couple quarters to his own bid).

In short, Michael Dell will argue that Dell has proven systemically unable to accurately predict financial performance in the midst of its transition from a PC giant to an enterprise services provider -- and that such volatility plays unnecessary havoc with publicly traded shares. So he instead will ask to assume the risk and work to transform the company as a private enterprise. Hard to imagine him signing onto a rival offer that would still require public equity participation -- let alone one that may not allow him to maintain control.

One thing we know for certain: This isn't over yet. Not by a long shot.

Sign up for Dan's daily email newsletter on deals and deal-makers: GetTermSheet.com

Join the Conversation
About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

Email a Tip | @danprimack | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.