Blackstone and Icahn enter Dell bidding

Both Blackstone and Mr Icahn sent letters to Dell on Friday night, saying they are preparing formal bids, these people said, according to the Financial Times.

In its letter to Dell’s special committee on Friday night, Blackstone said it would offer to buy all shares for more than $14.25 a share but did not specify an exact price, according to a person familiar with the situation.

Last month, Michael Dell announced he was taking the PC maker he founded private for $24.4bn in a deal with private equity company Silver Lake, for $13.65 a share.

The proposed buyout was met with derision from many shareholders, however, who believed it undervalued the company

Blackstone also identified two partners it was working with, Insight Venture Partners and Francisco Partners, this person said. Insight Venture Partners is a venture capital firm based in New York, with investments in Twitter and Tumblr. Francisco Partners is a private equity firm based in San Francisco. TPG, another private equity firm that Blackstone had talked to about participating, is not involved, reports the FT.

The letter also said Blackstone was open to a “public stub”, through which existing shareholders could roll their stakes in for equity. Blackstone said there would be a cap on the size of a public stub but did not provide details, this person said.

Morgan Stanley is advising Blackstone and indicated it was highly confident it would be able to provide financing for the deal. Blackstone has faced growing pressure from its limited partners to put capital to work.

Mr Icahn, in his letter to Dell’s special committee, offered to buy 58pc of shares for $15 apiece, one person said. His proposal would leave Dell with a 42pc public float, likely leaving existing shareholders with some equity in the company. Jefferies is said to be working with Mr Icahn, the FT reports.

The letters are not formal offers for the company but rather expressions of interest. Dell’s special committee will now have to decide whether the offers are reasonably likely to lead to a superior proposal.

Blackstone and Mr Icahn made their formal approaches on Friday night as a “go-shop” period for the company to explore other options to the agreed upon deal expired. Because the bids came in by Friday night, the break fee if Dell decides to be sold to another buyer will remain at $180m. Any new buyer to come to the table would now have to pay Mr Dell and Silver Lake $450m.

Dell’s special committee is expected to acknowledge receipt of the letters on Monday morning. However, it may be days before it indicates if it believes either proposal is superior to the agreed upon buyout.

If it does, either party will have yet more time to finalise their bids. Then, if Dell’s special committee agrees to accept a superior proposal, Mr Dell and Silver Lake will have just one opportunity to match or top that bid.

Blackstone and Mr Icahn had previously signed non-disclosure agreements with Dell, giving them access to the company’s books.

Earlier this month, Mr Icahn, one of Wall Street's most aggressive investors, threatened Dell with “years of litigation”, unless the PC maker offers an alternative to its plan to sell the company to founder Michael Dell.

In a public letter, billionaire Carl Icahn said that instead of selling Dell to its founder for $24bn (16bn pounds), it should return cash through a dividend that he claims would leave Dell’s shareholders substantially better off.

The hedge fund manager urged Dell’s board to commit to the special dividend of $9 a share if shareholders vote against the sale to Mr Dell and a US private equity firm that was agreed early last month.

Should the board fail to make the commitment, Mr Icahn, who is a veteran of many battles and one of America’s first 'corporate raiders’, warned he would seek to replace the board with directors who would approve his plan.