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Blackstone, Icahn set up three-way battle to buy out Dell

A company logo of Dell is seen on the cover of its laptop at a Dell outlet in Hong Kong October October 21, 2009. REUTERS/Bobby Yip
A company logo of Dell is seen on the cover of its laptop at a Dell outlet in Hong Kong October October 21, 2009. REUTERS/Bobby Yip

By Greg Roumeliotis and Jessica Toonkel

NEW YORK (Reuters) - Dell Inc appeared to have received competing offers following a $24.4 billion agreement last month to be taken private by its founder and private equity firm Silver Lake, setting up a tug-of-war for the world's No. 3 PC maker.

Blackstone Group LP submitted an indicative and preliminary offer ahead of the expiration of a "go-shop" period on Saturday that allowed Dell to explore other options, a person familiar with the matter said.

The buyout firm has not yet arranged bank financing, though it has put potential lenders on stand-by, according to a second source familiar with the matter.

Billionaire investor Carl Icahn, who has built up a minority stake in Dell and opposes the offer by founder Michael Dell and Silver Lake, also made an offer, according to the Wall Street Journal.

Details of the competing offers were not immediately known, but any rival bid would have to prove more appealing than the $13.65-per-share offer of Dell's founder and his private equity partner.

Blackstone is offering between $13.65 and $15 a share - trumping Michael Dell and Silver Lake's $13.65 - in a deal that will invite shareholder participation, the Wall Street Journal reported. Blackstone has approached a number of firms, including GE Capital, about financing for the deal, the second source familiar with the situation said. Dell shares closed Friday at $14.14.

The firm could finance the deal by selling a piece of Dell's business, the source said.

Any rival bid could use a "public equity stub," which gives existing shareholders the option to keep a stake in the company after a buyout, a person familiar with the matter said earlier this week.

That person also told Reuters that the company had slashed its internal forecast for fiscal 2013 operating profit to approximately $3 billion - down sharply from the $3.7 billion it had predicted previously. The source added that more details will be illuminated in a proxy filing next week.

Blackstone declined to comment while an Icahn representative did not return calls or an email requesting comment. Dell also declined to comment on the profit revision or the offers.

It was not immediately clear if other parties had submitted offers for Dell.

Michael Dell is trying to re-focus his company on enterprise computing services with the PC market in decline - a difficult transformation that Wall Street analysts have said is better executed away from public market scrutiny.

His proposal, which requires approval from a majority of shareholders excluding Dell himself, would end a 24-year run on public markets for a company that was conceived in a college dorm room and quickly rose to the top of the global personal computer business - only to be rendered an also-ran over the past decade as PC prices declined and customers moved to tablets and smartphones.

But major shareholders, including Southeastern Asset Management and T. Rowe Price, have protested that his offer undervalues the company and pledged to vote against the deal, which requires a majority of shareholders, excluding the founder, to pass.

WHO WILL LEAD?

Blackstone had made an aggressive push to recruit Oracle Corp President Mark Hurd to take Michael Dell's place as chief executive, a person familiar with the situation said on Wednesday. But a source familiar with the situation said Hurd has no intention of leaving Oracle.

It's unclear what Blackstone intends to do with the company should it submit a bid and win. Analysts have speculated that a buyer could either sell off assets - such as the underperforming PC division that still accounts for about half of revenue - or complete the overhaul Michael Dell began and put the company back on a higher-margin growth track.

The New York-based private equity firm conducted due diligence on Dell ahead of the March 22 expiration of a so-called "go-shop" period, which offered interested parties the opportunity to outbid Michael Dell's consortium.

Michael Dell returned to the company as CEO in 2007, after a brief hiatus but has been unable to engineer a turnaround thus far. Analysts said Dell could be more nimble as a private company, but it will still have to deal with the same difficult market conditions.

Dell executives have said they intended to stick to a strategy of expanding its software and services offerings for large companies, with the goal of becoming a full-service provider of corporate computing services in the mold of highly profitable IBM. The company founder has not said what he would do differently with his company a private entity.

Dell was regarded as a model of innovation as recently as the early 2000s, pioneering online ordering of custom-configured PCs and working closely with Asian component suppliers and manufacturers to assure rock-bottom production costs. But it missed the big industry shift to tablet computers, smartphones and high-powered consumer electronics such as music players and gaming consoles.

As of 2012's fourth quarter, Dell's share of the global PC market had slipped to just above 10 percent from 12.5 percent a year earlier as its shipments dived 20 percent, according to research house IDC.

(This story was corrected in second paragraph to make clear that Blackstone submitted the offer ahead of the deadline on Saturday)

(Writing by Edwin Chan; additional reporting by Susan Kelly; editing by Gunna Dickson and Jackie Frank)

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