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Tuesday, March 26, 2013

New Suitors for Dell Raise Specter of Founder’s Loss

8:43 p.m. | Updated

The emergence of two new bidders for Dell Inc. over the weekend has set off a flurry of scrambling among the would-be owners of the embattled computer company, potentially leading to months of new talks.

By choosing to continue negotiating with the Blackstone Group and the billionaire Carl C. Icahn, a special committee of Dell’s board has raised the possibility that Michael S. Dell may very well lose control of the company he founded nearly 29 years ago.

On Monday, the board committee deemed that the preliminary bids by Blackstone and Mr. Icahn were reasonably likely to become superior proposals. Both are offering more than the $13.65-a-share plan that Mr. Dell and his partner, Silver Lake, have put forth.

The latest developments complicate efforts by Mr. Dell and Silver Lake to take the company private in a risky bid to revitalize a once-dominant technology giant.

For the private equity firm Blackstone, the decision means a chance to trump Silver Lake after its rival had a head start of months. For Mr. Icahn, who owns a roughly 4.5 percent stake in Dell, the goal may simply be a higher buyout offer for shareholders, including himself.

Both Blackstone’s and Mr. Icahn’s conditional proposals were meant to extend negotiations with the Dell special committee, and still lack firm commitments for the necessary financing.

But the new competition may eventually prompt Mr. Dell and Silver Lake to raise their price. Any potential sweetening of their bid wouldn’t come for months, however.

Still, investors appeared heartened by the prospects of a higher offer. Shares in Dell jumped 2.6 percent on Monday to $14.51, which continues to be well above the existing offer by Mr. Dell and Silver Lake.

In a statement, Mr. Icahn said that he had had preliminary discussions with Blackstone and planned to review its proposal, raising the possibility that he might switch allegiance to his nominal competitor.

Mr. Dell, who has publicly committed to exploring working with other partners in good faith, could himself reach out to Blackstone as soon as this week, according to a person briefed on the matter. But Mr. Dell still has concerns about Blackstone’s offer, which may involve selling off Dell’s financial services arm or another division. He isn’t compelled to cooperate with any partner but Silver Lake, though his options to block a rival bid accepted by Dell’s special committee are limited.

As of Monday evening, the situation remained highly fluid. Representatives for Mr. Dell, Blackstone and Silver Lake declined to comment on Monday.

The plans put forth by Blackstone and Mr. Icahn address a major demand by some of the most vocal opponents of Mr. Dell’s current offer. Both have said that they would allow investors the chance to stay invested by keeping a portion of the company publicly traded.

This so-called stub would let shareholders share in any future Dell success, or continue to suffer if the technology giant falters.

Southeastern Asset Management, which owns about 8.4 percent of the company and is one of the most outspoken critics of Mr. Dell’s offer, said in a statement that it was pleased by the structure of the alternative bids.

In its preliminary proposal, Blackstone suggested that it would pay over $14.25 a share for Dell. Shareholders wishing to sell off their entire stakes would be able to do so.

While the firm did not specify what percentage of the company would remain publicly traded, people briefed on the matter said that the stub could be well over 10 percent of the remaining company.

But Blackstone and its partners, the investment firms Francisco Partners and Insight Venture Partners, are contemplating selling off businesses to help pay for their deal. At the top of their list is Dell’s financial services arm, which lends money to individual and corporate customers, according to people briefed on the matter.

Blackstone is expected to search for buyers for the unit, with General Electric’s GE Capital one potential candidate, these people said.

There is one possible complication for Blackstone and Mr. Dell: the private equity firm is not sure whether it would keep him as chief executive should it succeed. The buyout shop has interviewed potential candidates for the role, these people added.

Mr. Icahn proposed buying no more than 58.1 percent of Dell at $15 a share, with at least $5 billion of the purchase price being paid out of his own pocket. That means investors would most likely be able to sell only a portion of their holdings.

Both Blackstone and Mr. Icahn said in their proposals that they had held discussions with several major Dell shareholders, with the expectation that some would continue to own stakes in the company. (Mr. Icahn explicitly proposed owning a 24.1 percent stake if he were to succeed, while Southeastern would own 16.6 percent.)

By contrast, Mr. Dell and Silver Lake have offered to buy out all existing shareholders.