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Posted Date: 4/23/2013

PC Shipment Woes Cause Blackstone to Pull Plug on Dell Deal

By George L. Koroneos, Editor

The Blackstone Group, late last week, announced that it was pulling its offer to purchase Dell due to the previous week's news that the number of PCs shipped in the first quarter of 2013 had plunged 14 percent.

In a letter to the Dell Board of Directors, Blackstone stated, "While we still believe that Dell is a leading global company with strong market positions, a number of significant adverse issues have surfaced since we submitted our letter proposal to you on March 22nd, including: (1) an unprecedented 14 percent market decline in PC volume in the first quarter of 2013, its steepest drop in history, and inconsistent with Management's projections for modest industry growth; and (2) the rapidly eroding financial profile of Dell.  Since our bid submission, we learned that the company revised its operating income projections for the current year to $3.0 billion from $3.7 billion."

This news comes a few days after Dell announced that it had reached an agreement with Dell shareholder Carl Icahn to cap his shares of the company to 10 percent. In exchange, the mega-investor, who currently owns 5 percent of Dell, is now free to discuss bidding on the company with other shareholders.

"I want to make it very clear that I have retained the absolute right to conduct a proxy fight at Dell," Icahn stated in a release. "In fact, I have refused to take a $25 million expense reimbursement from Dell as the price of giving up a proxy fight."

The battle for Dell now comes down to Icahn and Michael Dell, who initially filed a $24.4 billion bid for the company with help from the Silver Lake Partners and has plans to take the company private. But one has to wonder whether Blackstone's decision to pull out of the deal has now painted a scarlet letter on the computer giant. It's well known that Dell has been very slow to move away from a hardware-centric business model and shift towards software and services. With the news that PC sales are not doing so well, Dell is going to have a much harder time proving that it's worth more than what Michael Dell is asking for.

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