/// What’s Dell’s Bidding Process Really About? (Clue: It’s Not About Fixing Dell)

March 31, 2013  |  All Things Digital


Earlier this week, Dell revealed in agonizing detail the arduous months-long process leading up to last month’s $24.4 billion offer by CEO Michael Dell and the private equity firm Silver Lake Partner to take the company private. Friday’s long-awaited proxy filing by the once mighty Texas computing giant leaves no miniscule step in the process undocumented, starting with the earliest suggestions of such a transaction last June by someone at Southeastern Asset Management, Dell’s largest institutional shareholder, all the way to the preliminary offers made earlier this month by the private equity firm Blackstone and the well-known activist investor Carl Icahn. The special committee of Dell’s board of directors, charged with overseeing the buyout process as well as the go-shop period that ended a week ago, has said that the interest drawn from Blackstone and from Icahn may turn out to be superior. But also buried within the 274-page filing are lots of clues that the bidding process has less to do with any concrete plans to turn around a deeply troubled tech company and more to do with making a few private equity firms look powerful and, of course, make money in the process. And, more to the point, not much yet has to do with what it will take to fix Dell and transform it to face the challenges of the new era of computing. In its document, the company outlined its troubles in detail via a variety of voices — including Dell’s CFO — essentially describing a troubled company in a declining market. Instead, it’s now solely about the art of the deal. That’s no surprise. If consummated, a Dell buyout would be a huge private equity transaction, the biggest since 2007, and more than three times the size of the largest buyout deal of 2012 . Also no surprise: As the second largest private equity player according to research firm Private Equity International , Blackstone certainly has to appear to be making a move on Dell. But here’s the hint that its offer — which is as yet only preliminary and nowhere near final — is being made in part for the sake of appearances. Blackstone requested — and Dell’s special committee granted — that its transaction-related expenses be reimbursed, up to a limit of $25 million. In other words, Blackstone can make a bid for free and its managers will be able to argue to its limited partners that it took a plausible shot at Dell, even if it misses. Here’s the relevant section from page 45 of the proxy: In connection with its submission of the Blackstone Proposal, the Blackstone consortium informed the Special Committee that it was not willing to proceed with its evaluation of the transaction contemplated by the Blackstone Proposal unless, prior to 5:00 p.m

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What’s Dell’s Bidding Process Really About? (Clue: It’s Not About Fixing Dell)


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