Term Sheet

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

Blackstone bails on Dell

April 18, 2013: 10:14 PM ET

dell_sign_headquartersBlackstone ends its pursuit of the PC maker.

FORTUNE -- The Blackstone Group (BX) is ending its pursuit of Dell Inc. (DELL) without formally submitting a superior offer to the $24.4 billion bid made earlier this year by company founder Michael Dell and private equity firm Silver Lake Partners.

The Wall Street Journal first reported the news earlier this evening, and it has been independently confirmed with multiple sources by Fortune. We also have learned that Blackstone plans to formally advise Dell's special committee of its decision later tonight via letter.

This means that Michael Dell and Silver Lake clearly are in pole position, although Carl Icahn remains a wildcard in the outside lane. No other bidders emerged during a "go-shop" period that expired last month.

Blackstone was an odd suitor for Dell from the start, given its lack of a successful track record in the technology space. In fact, Michael Dell didn't even approach the firm last summer when he was seeking deep-pocketed private equity partners for his takeover attempt.

The only real connection was in the form of David Johnson, Dell's chief deal-maker until he joined Blackstone this past January. It was never really clear if he left Dell on good or bad terms, nor if he held enough sway yet inside of Blackstone to pull off what would have been the firm's largest buyout since Hilton Hotels in 2007.

Earlier today I asked Blackstone president Tony James about the firm's commitment to technology deals, to which he responded enthusiastically. At the same time, however, the firm's current tech deal team remains light on relevant experience.

No specific word yet on why Blackstone bailed, although Dell's recent earnings and broader PC sector spiral couldn't have helped matters. There also were broad questions as to how Blackstone would successfully finance the deal. Not only because its public equity "stub" may not have been large enough to fill the hole left by Michael Dell's shares, but also because it would have to sell bankers on a new management team. Plus, Microsoft (MSFT) has committed a $2 billion loan to the Silver Lake deal which is not necessarily fungible.

A Blackstone spokesman declined to comment. Fortune also has reached out to Dell's special committee for comment, and will update this post if it is forthcoming.

Dell shares today closed trading at 13.95 per share, or more than 2% higher than Silver Lake's $13.65 per share offer. Several of Dell's largest outside shareholders, including Southeastern Asset Management and T. Rowe Price, have said they'll vote against such an offer.

UPDATE: Dell's special committee just released the letter received from Blackstone. Here it is:

Dear Alex,

I want to thank you, the Special Committee, and its advisors for inviting us into the process and for granting us due diligence access to Dell Inc.  I also want to express our gratitude to Michael Dell and the management team for spending time with us and providing us with information and data relating to the business plan and financial forecasts of Dell.

You have asked for an update of our views after the intensive due diligence that we just completed.  While we still believe that Dell is a leading global company with strong market positions, a number of significant adverse issues have surfaced since we submitted our letter proposal to you on March 22nd, including: (1) an unprecedented 14 percent market decline in PC volume in the first quarter of 2013, its steepest drop in history, and inconsistent with Management's projections for modest industry growth; and (2) the rapidly eroding financial profile of Dell.  Since our bid submission, we learned that the company revised its operating income projections for the current year to $3.0 billion from $3.7 billion.

For the reasons set forth above, among other reasons, on behalf of Boulder Acquisition Corp., Blackstone Management Partners, Francisco Partners, Insight Venture Partners, and Riverwood Capital, I regret to inform you that we will likely not pursue this opportunity.  I would welcome the opportunity to speak to you to follow up on these matters and answer any questions that you may have.

Sincerely,

BOULDER ACQUISITION CORP.

By: /S/

Name: Chinh Chu

RELATED: What did (or didn't) Blackstone know about Dell?

Sign up for my 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.