Dell Inc. (DELL: Quote) said Friday that a consortium led by private equity giant Blackstone Group L.P. (BX: Quote) has informed of its decision to not submit a definitive takeover proposal for the beleaguered personal computer maker. Shares of Dell are currently down more than 3 percent in the regular trading session.
Dell noted that a special committee reporting to its board was informed by Blackstone of its decision to not submit a definitive proposal to acquire the company and was withdrawing from the process. Blackstone, which had completed due diligence on Dell, said in a letter to the special committee that a number of significant adverse issues have surfaced since the submission of its letter proposal to Dell on March 22.
According to Blackstone, an "unprecedented" 14 percent market decline in personal-computer sales volume was recorded in the first quarter of 2013, which was inconsistent with Dell's projections for modest industry growth. In addition, Blackstone cited 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," Blackstone said in its letter.
Round Rock, Texas-based Dell agreed in early February to be taken private in a $24.4 billion deal by its founder, Chairman and CEO Michael Dell in partnership with private-equity firm Silver Lake Partners. Michael Dell and Silver Lake will pay $13.65 in cash for each Dell share. The deal is expected to close before the end of the second quarter of Dell's fiscal year 2014. However, other major shareholders have been unhappy about the offer.
In late March, Dell confirmed receipt of two non-binding alternative bids from a consortium led by Blackstone as well as a group led by activist investor Carl Icahn's Icahn Enterprises (IEP: Quote) before the 45-day go-shop period concluded on March 22.
Icahn offered to acquire 58.1 percent of Dell for $15 per share in cash, while the Blackstone-led consortium, including Francisco Partners LP and Insight Venture Partners LP, indicated a cash and stock offer in excess of $14.25 per share for a part of Dell in a leveraged recapitalization deal.
On Tuesday, Dell reached a deal with Icahn for limiting his stake in the personal computer maker to 10 percent. The special committee reporting to Dell's board expects that deal to help produce a superior proposal from Icahn, while also protecting its other shareholders against potential accumulation of an unduly influential voting interest.
In return, the deal provides Icahn entities a limited waiver under Section 203 of the Delaware General Corporation Law that facilitates Icahn's ability to engage with other Dell stockholders. However, Icahn cannot make any deals with other shareholders who together would collectively own more than 15 percent of Dell's shares.
Dell noted that the agreement with Icahn will expire when the Michael Dell/Silver Lake Partners transaction is finalized or a superior bid is accepted. The deal would also expire on January 15, 2014.
Dell has reportedly agreed to reimburse Blackstone for up to $25 million for its work in considering a formal bid. Blackstone's withdrawal from the race to acquire Dell raises the possibility of Michael Dell and Silver Lake succeeding in their bid to take the company private. The strength of Michael Dell's offer is his participation and his decision to roll over his 15.6 percent stake to help finance the deal.
In Friday's regular session, DELL is trading at $13.44, down $0.51 or 3.69 percent on a volume of 41.74 million shares.
by RTT Staff Writer
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