Dell confirms Blackstone drops takeover bid amid PC slump
The private equity firm also cites Dell's "rapidly eroding financial profile" as part of its reason to withdraw from the takeover process.
The private equity firm last month launched a bid for the computer maker to rival a $24.4 billion buyout offer from Silver Lake and Michael Dell. However, since that time, the troubles facing Dell have become more clear, causing Blackstone to drop its bid. News of the withdrawal was
Blackstone noted in a letter to Dell's special committee that a "in the first quarter of 2013" worried the firm and didn't line up with Dell's projections for modest industry growth. In addition, Blackstone's evaluation of Dell showed a "rapidly eroding financial profile." Since the bid submission, Dell cut its projections for operating income in the current year to $3 billion from $3.7 billion, the firm said .
Dell's special committee set up to evaluate the company's options declined to comment. Dell said in a statement, however, that "as the board's special committee continues to oversee its process to ensure the best possible outcome for Dell shareholders, we remain focused on our customers and on providing innovative products and solutions to help them succeed."
PC sales have been weak for quite some time, with quarterly results from computer and semiconductor makers reflecting the hard times. The sector is not only being hurt by the weak economy but also by consumers opting for mobile devices instead of traditional PCs. Microsoft's latest operating was expected to boost sales, but instead, analysts believe it's hurting the market.
Tech research firms Gartner and IDC last week said first-quarter PC shipmentsr, the worst since IDC started tracking the figures in 1994. The period marked the fourth consecutive quarter of year-over-year shipments decline, and the market is expected to slump for all of 2013.
Dell has taken steps to take itself private, in part to give itself time to transform into a more business-focused tech provider. It has made many acquisitions in storage, networking, and related areas over the past several years and has said it will continue to do so. However, there are worries those businesses won't be able to offset the decline in Dell's core computing market.
Blackstone submitted a tentative offer to buy the company after Dell announced in February its plans to take the company private via a $24.4 billion, or $13.65 per share, buyout by its founder and CEO Michael Dell, who owns about 14 percent of Dell's common shares, and the private equity firm Silver Lake. Microsoft also kicked in a $2 billion loan toward the buyout, which still requires approval from a majority of Dell's shareholders in order to go through.
Dell confirmed last month that it had received two buyout offers: one from Blackstone and the other from activist investor Carl Icahn.
According to Dell, the Blackstone proposal would have given shareholders two options: cash out or stay in. Those that cashed out would receive $14.25 per share, while those who decided to stay would receive shares "valued in excess of $14.25."
The Blackstone proposal would have kept Dell public, meaning the company's stock would continue to trade on the Nasdaq stock exchange. Blackstone had reportedly approached Mark Hurd, the former chief executive at Hewlett-Packard, about the possibility of running Dell if its buyout effort were successful, but Hurd denied any interest in the position.
Here's the full letter that Blackstone sent to Dell to withdraw its proposal:
Boulder Acquisition Corp.Updated at 8:35 a.m. PT with comment from Dell.
c/o Blackstone Management Partners L.L.C.
April 18, 2013
STRICTLY PRIVATE AND CONFIDENTIAL
Special Committee of the Board of Directors of Dell Inc.
One Dell Way
Round Rock, Texas 78682
Attention: Alex Mandl, Presiding Director
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.
BOULDER ACQUISITION CORP.
Name: Chinh Chu
cc: Roger Altman, Evercore Partners