Blackstone backs out from pursuing Dell bid

Private equity firm Blackstone Group has backed out from tabling a firm offer for Dell Inc, leaving the Michael Dell-led consortium and billionaire activist investor Carl Icahn in the race to buy the world's third-largest personal computer maker.

After conducting due diligence, Blackstone has now written to Dell's special board committee that it will not make a firm offer due to declining global sales in personal computers as well as a slump in Dell's operating income, The Wall Street Journal yesterday reported, citing people familiar with the matter.

Blackstone and Icahn have separately been trying to table a firm offer for Dell after Michael Dell and Silver Lake Partners had in February offered to take the company private for $13.65 a share or $24.4 billion. (See: Dell sells itself to Michael Dell and Silver Lake in a $24.4 billion deal)

Blackstone had last month teamed up with Francisco Partners and Insight Venture Partners and made an indicative $14.25 a share offer, for a part of the company.

Under the offer, a part of Dell would still be publicly traded, while Icahn has offered $15 a share for 58.1 per cent of Dell, but is more keen to replace the board and block a sale in favour of a dividend.

Both indicative offers came during the go-shop period and Dell's special committee had agreed to reimburse Blackstone up to $25 million for its efforts in tabling a formal bid, while Icahn had refused the reimbursement in order to keep the option of a proxy fight open.

After conducting due diligence, Blackstone may have realised that Dell's business was stalling faster than it had previously thought.   

To make matters worse, market intelligence firm IDC in its last week's report, said that PC sales in the US fell 12.7 per cent in the first quarter from a year earlier, while Dell's US sales were down 14 per cent, and global sales down by more than 10 per cent.

The withdrawal of Blackstone leaves Icahn as the only potential suitor to block the acquisition by Michael Dell and Silver Lake.

Early this week, Icahn agreed to Dell's condition not to raise his stake in the PC maker to over 10 per cent, while continuing to find an alternative proposal, which now looks remote (See: Carl Icahn agrees to limit Dell stake to under 10%).

''My affiliates and I expect to engage in meaningful discussions with other Dell shareholders, discussions that we believe will help to facilitate alternatives to the existing transaction with Michael Dell,'' Icahn had said in a statement on Tuesday.

Michael Dell and Silver Lake's offer requires the approval of a majority of shareholders, excluding Michael Dell, who is contributing his 15.6 per cent stake to the new company.

Some of Dell's large institutional shareholders have opposed the deal saying the offer ''grossly undervalues the company.''

Two of Dell's largest institutional share holders - Southeastern Asset Management and T Rowe Price have opposed Michael Dell's offer as too low and are on record saying that they wish to continue as investors in the company.

Southeastern has said that Michael Dell was stealing the company with his $13.65-a-share offer and has demanded as much as $23.72 per share.

Forbes had earlier estimated that Southeastern could lose more than $1 billion if Michael Dell's offer went through.