Dell’s $24bn buyout hits the skids as Special Committee mulls counter-offers from Icahn and Blackstone

The Special Committee of the Board of Dell has confirmed today that two alternative acquisition proposals have been submitted during the “go-shop” period that was triggered following the $24.4 billion offer by company founder Michael Dell and Silver Lake last month.

One proposal has been submitted by a group tied to a private equity fund managed by Blackstone, verifying reports that emerged over the weekend. If approved, shareholders could choose to receive at least $14.25 in cash, per share, for all of the shares that they own. Alternatively, if they wanted to continue backing the company, they would be able to receive shares valued at a minimum of $14.25.

It would be funded using a mixture of equity and debt financing, in addition to cash and cash equivalents owned by Dell.

The second was filed by “entities affiliated with Carl Icahn”, no doubt following on from a letter that the billionaire investor sent to the company’s board earlier this month. The proposed merger would involve a $2 billion investment from Icahn, in order to purchase shares at a price of $15 per share, as well as $7.4 billion from Dell, $5.218 billion in new debt and $1.712 billion in new factoring receivable facility.

Shareholders could choose to retain their shares in the new company at their current holdings, or up to $15.65 billion in cash at a rate of $15 per share.

This is not good news for Michael Dell, who would have hoped to complete the original deal, taking the company private, with very little resistance.

The Special Committee, consisting of four independent and neutral directors, has decided that both proposals could in fact be a better option to that proposed by the company’s founder, chairman and CEO.

Following a consultation with their financial and legal advisors, the board has therefore decided to continue its negotiations with both parties going forward.

Michael Dell has also told that Committee that he is willing to explore “in good faith” the idea of discussing and working with these two parties for an alternative acquisition proposal.

A timetable hasn’t been specified for these talks, however, placing a great deal of doubt on the idea that such an acquisition will be completed anytime soon.

“We intend to work diligently with all three potential acquirers to ensure the best possible outcome for Dell shareholders, whichever transaction that may be,” Alex Mandl, Chairman of the Special Committee said.

So with three players at the table, negotiations will undoubtedly become more complicated and long-winded. It’s worth noting that the Special Committee is still able to terminate the original $24.4 billion acquisition offered by Michael Dell and Silver Lake, if they believe another proposal is better for the company.

The Special Committee has emphasized, however, that it still supports the original deal and that there can be “no assurance that either proposal will ultimately lead to a superior proposal.”

The original deal, which involves a $2 billion loan from Microsoft, would represent a price of $13.65 per share, working out at a premium of 25 percent compared to its closing share price of $10.88 on January 11. That date is important, because it was the last day of trading before the first reports speculating a deal were published.

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