Buyout specialist Blackstone Group LP is dropping its effort to acquire Dell, and billionaire investor Carl Icahn is reportedly unlikely to follow through on his preliminary acquisition offer, as suitors digest studies showing a staggering decline in PC sales.
The Wall Street Journal said Icahn will now likely wait to see if shareholders approve a February deal for the company to be taken private by a group that includes founder and CEO Michael Dell for $24.4 billion. The newspaper, citing an unnamed person familiar with Icahn's thinking, said that if the deal is rejected, Icahn may pursue a hostile takeover.
The news came after the company said in a securities filing Friday that Blackstone was withdrawing from the bidding process.
Blackstone and its partners said that because of the latest PC market figures, which surfaced after their bid was submitted last month, they have dropped a plan to buy most of Dell's outstanding stock for $14.25 per share. A letter from the group to a special committee of Dell board members was dated Thursday and disclosed Friday.
Blackstone's withdrawal and Icahn's new wait-and-see approach leaves Dell with the February offer from Michael Dell's group, which has offered $13.65 per share in a deal that would take the company private.
Icahn's preliminary proposal had been to acquire 58 percent of Dell stock for $15 per share while keeping it publicly traded.
PC sales have been declining as people delay replacing desktop and laptop computers and spend money instead on smartphones and tablet computers. Worldwide PC shipments plunged by 14 percent in the first three months of the year, according to IDC. That's the steepest quarterly decline during the 19 years that the research firm has been tracking the market. Dell, the world's third largest maker of desktop and laptop computers, saw PC sales fall 11 percent during the first quarter. Another research firm, Gartner, also reported large declines in PC sales.
Michael Dell believes he can turn around the company by diversifying into more profitable niches such as business software, data storage and consulting. It could be a wrenching process, something that Michael Dell believes he will be able to do if he doesn't have to worry about Wall Street's fixation on short-term results. But major shareholders have been unhappy with his group's offer, and competing bids emerged.
The Blackstone letter said that while the bidders still believe Dell is "a leading global company with strong market positions," it also cited Dell's "rapidly eroding financial profile." It noted that Dell has lowered its operating income forecast for this year to $3 billion, from $3.7 billion. That $3.7 billion, in turn, had been lowered this year from a $5.6 billion figure that Dell had circulated internally in July, according to regulatory filings.
Shares of Dell fell 55 cents, or 3.9 percent, to close at $13.40 on Friday and slipped to $13.37 in after-hours trading. It's the first time since Feb. 11 that the price has dropped below the Michael Dell group's offer price, indicating that investors no longer believe a higher bid will emerge.
When asked about Blackstone's characterization of Dell's financial profile, spokesman David Frink said in an email that the company remains focused on its customers and "providing innovative products."
A spokeswoman for New York-based Blackstone declined any additional comment on the decision. A message left for Icahn seeking comment was not immediately returned.
Initially valued at $85 million in its 1988 initial public offering, Dell went on a growth tear that turned the company into a stock market star. At the height of the dot-com boom in 2000, Dell was the world's largest PC maker, with a market value of more than $150 billion.
But Dell began to falter as other PC makers were able to lower their costs. At the same time, Hewlett-Packard Co. and other rivals forged relationships with stores that gave them the advantage of being able to showcase their machines. By 2006, HP had supplanted Dell as the world's largest PC maker. With its revenue slipping, Dell's market value had fallen to $19 billion just before the Michael Dell bid emerged.
In a show of confidence in his plan, Michael Dell is contributing $4.5 billion of his cash and stock to the proposed buyout, which is led by investment firm Silver Lake Partners. Loans would provide most of the rest of the financing. Microsoft Corp., which counts Dell among its biggest customers, is backing the deal by lending $2 billion to the buyers.
The board special committee had said it believed Blackstone's proposal could have been more lucrative than that deal. But the committee wanted to review the formal terms of Blackstone's bid before making a final assessment.
Dell has agreed to cover up to $25 million in expenses that Blackstone incurred while exploring its bid. Dell isn't reimbursing Icahn for his expenses because he refused to agree to a company demand that would have prevented him from pursuing a hostile takeover attempt.