Your Move, Carl: Blackstone Bows Out of Dell Sweepstakes

Blackstone Group, one of two bidders in the private equity “go-shop” solicitation of alternate buyers in the Dell (NASDAQ: DELL) sweepstakes, has withdrawn its bid for the company, blaming the computer maker’s finances and the bleak outlook for PC sales worldwide.

You’ve got to figure that for Blackstone to drop out there must have been a huge, indelible red flag staring it in the face. Indeed, in a letter to Dell’s special committee, Blackstone pointed in particular to Dell’s downward revision of its “operating income projections for the current year to $3.0 billion from $3.7 billion.”

In an SEC filing on April 19, Dell posted the Blackstone withdrawal and its support for the Silver Lake offer: “The Special Committee of our Board of Directors has been notified by Blackstone Management Partners L.L.C. that the group led by Blackstone has decided not to submit a definitive proposal to acquire Dell and is withdrawing from the process. Following this development, the Special Committee will continue to oversee its process to ensure the best possible outcome for Dell shareholders. As a reminder, the Special Committee continues to support the proposed transaction in which Michael and Silver Lake will acquire Dell and take the company private.”

Blackstone’s bid for Dell was said to be $14.25 a share, a midpoint between Silver Lake Management’s initial $13.65 offer and billionaire activist investor Carl Icahn’s $15 a share bid. By pulling out of the negotiations, Blackstone effectively halted any prospects of a bidding war over Dell between the remaining principals. At this point, neither Silver Lake nor Icahn are saying whether Blackstone’s withdrawal has caused them to rethink their positions. A Bloomberg report indicated that Silver Lake’s agreement with Dell included a no-withdrawal clause. And, Icahn and his affiliates have come too far to back out just yet.

Ironically, Dave Johnson, Dell’s former mergers and acquisitions chief who helped Blackstone craft its bid for the computer maker, may also have spurred the buyout firm to back away from the deal. According to a Bloomberg account, Johnson concluded that Dell’s enterprise solution business was years away from bearing fruit and he was concerned over the stability of management involved in the effort.

Johnson may have surmised that since his departure from Dell for Blackstone in January, some of the 20 acquisitions he oversaw, valued at about $10 billion, had yet to be well-integrated into the company’s strategic execution and would take longer than anticipated to do so. If Johnson’s assessment, as depicted, is accurate, Dell’s ability to transform itself to a solutions and services provider in a climate of uncertain IT hardware spending would open serious, and unanswered, questions about its future prospects. 

As for Icahn, in the near term he seems likely to remain in the bidding. He recently agreed with Dell to cap his ownership interest in the computer maker at 10 percent and not collaborate on deals with other investors who together own more than 15 percent of the company. In exchange, Icahn gained the ability to haggle with other Dell shareholders to craft a better offer for the company.