NEW YORK/SAN FRANCISCO- Dell Inc warned on Friday that it would be dangerous to take on a lot of debt and remain a public company given its worsening profit outlook, in a sign that it views proposals from Blackstone Group LP and billionaire investor Carl Icahn as fraught with risk.
The No. 3 maker of personal computers published a 274-page preliminary proxy statement to inform Dell shareholders of how a $24.4 billion buyout proposal from founder and Chief Executive Michael Dell and private equity firm Silver Lake Partners was put together, and why it is the best of all the alternatives the company’s board had explored.
Icahn has proposed paying $15 per share for 58 percent of Dell, while Blackstone has indicated it can pay more than $14.25 per share — both deals involve saddling the company with a lot of debt and keeping it on public markets. Silver Lake’s $13.65 per share all-cash offer would see Dell go private.
Dell’s proxy statement did not directly pass judgment on the Blackstone and Icahn bids, yet it warned that any leveraged recapitalization was risky if the company was to remain public.
“Even when taking into account the certain value distributed to stockholders, (a leveraged recapitalization) would be unlikely to result in an aggregate value exceeding the $13.65 per share merger consideration and would present a number of risks and challenges,” Dell said in the statement, referring to its special committee’s review.
Such a move would decrease employee, customer and supplier confidence in the company’s long-term prospects and potentially limit the company’s ability to aggressively implement its long-term business strategy, Dell added.
Under all scenarios examined by Boston Consulting Group, which carried out an independent analysis for Dell, revenues are seen slipping every year to 2016. Dell’s board expects fiscal 2014 operating income of $3 billion, down from last summer’s internal forecast of as much as $5.6 billion, the proxy shows.
Dell painted an account of arduous negotiations. It set up a special committee to evaluate all the company’s options aiming to placate concerns over potential conflicts of interest facing Michael Dell.
The CEO owns 15.7 percent of the company he started in 1984 out of his college dorm room with $1,000. Under his take-private deal, Michael Dell and his investment firm would own 75.9 percent of the company, with Silver Lake owning the rest.
Dell said Michael Dell’s and Silver Lake’s post-buyout plan anticipated adding a significant number of sales personnel and boosting spending on research and development. There are no plans to embark on major assets sales following the buyout, it added,
The restructuring plan envisioned, were it to be carried out with Dell as a public company, would not be palatable to shareholders and the stock could suffer, Dell said.
Dell also said a strategic party, whose identity it did not disclose, expressed interest on January 24 to acquire its financial services business for its book value, estimated at between $3.5 billion and $4.5 billion, excluding debt.
A standalone deal of this kind would not benefit the company, Dell concluded.