Dell in Dire Straits after Blackstone Exit

Blackstone Group LP has finally withdrawn their bid for PC maker Dell. The group had been weighing up the price it should offer for buying Dell but eventually decided to remove itself from the race. Until then, it was a three-way battle, with the other major contender being founder Michael Dell who has made a bid in conjunction with Silver Lake. Now that the Blackstone Group is out of the picture, it seems as though there is no stopping Michael Dell from retaining ownership and control of his company.

However, it was being anticipated that Blackstone would be able to outbid the coalition and buy Dell. This seemed to be the case with the investors as well. As soon as the news broke out regarding Blackstone withdrawing its bid, the share prices of Dell plummeted. In fact, the fall was so steep that the price reached its lowest level in the past two months. The nearly 4% drop caused the price per share to fall to $13.40. The last time the price had been this low was in early February.

The main reason Blackstone has cited for withdrawing its bid is that the market for PCs is contracting. There is nothing untrue about this at all. Rather, the financial projections for the future aren’t encouraging. Despite being the world’s no.3 PC maker, Dell is expected to face tough time, considering the fact that it isn’t as popular as some of the other companies in the market, like Microsoft and Apple. So, it does appear as though Blackstone is justified in its decision.

The share price after Blackstone’s withdrawal is quite significant. For one, it is much lower than the price offered by Blackstone in its original bid. The group had offered to pay $14.25 per share. On the other hand, Michael Dell and Silver Lake are offering $13.60 per share. Given that the stock price fell steeply, it does seem as though they would be able to win the bid. Before the fall, Blackstone’s offer was ideal, with the shares trading at close to $14.

The third party in the race, Carl Icahn, is offering a higher share price. The issue is that Icahn doesn’t want more than 58% of the company. Dell would have to contemplate the $15 per share offered by Icahn when deciding whether they want to sell part of the company or not. It is bound to be a tough decision for the review committee as they aren’t inclined towards giving away control of the company to Michael Dell. Yet, Icahn doesn’t want the whole company.

The issue with Michael Dell is that he wants to remove the company from the public markets and turn it into an entity providing enterprise services only. By buying out the company, he would be free to do as he please as there would be no investor pressure. Blackstone may have done him a huge favor by withdrawing its bid just a month after submission. Still, the company wishes to close the deal before June which puts Michael Dell and Silver Lake as the frontrunners for winning the bid.

[Image via bloomberg]