Michael Dell Demands CEO Guarantee From Blackstone Group

Dell founder Michael Dell may back Blackstone Group's bid to buy his company if the private equity firm can guarantee he will remain CEO, turning his back on an earlier bid made with Silver Lake and Microsoft.

The company founder has also sent a rallying memo to Dell employees this week, published in a filing with the SEC, in which he forecasts significant research and development investment, new hirings, and growth in emerging markets like Brazil, India and China.

Michael Dell is currently mulling over a counteroffer against Stephen Schwarzman's Blackstone Group, which submitted a bid to buy the computer manufacturer for $14.25 a share (valuing the company at $25bn/£16.5bn), higher than Dell's own original offer of $13.65 a share, a figure that was criticised by investors for undervaluing the company at $24.4bn.

Both offers are below the firm's current share price of $14.30 per share, a figure buoyed in recent weeks thanks to Dell's original bid to take the company private and Blackstone's counteroffer made a month later.

According to Bloomberg sources familiar with discussions between Michael Dell and Chinh Chu and David Johnson - the Blackstone executives overseeing its bid - Dell said he would be more likely to support their proposal if he retained an influential role at the company, preferably keeping his current position of CEO.

A second source believes Michael Dell is considering dropping out of his joint $13.65 per share bid with Silverlake (a deal boosted by a $2bn loan from Microsoft), and it is believed that Dell did not inform Silverlake of his recent meetings with Blackstone.

Dell's offer of $13.65 per share at first looked strong, given Dell's then price of $10.08, but media coverage of a potential buyout by Dell, Blackstone or billionaire investor Carl Icahn has driven the price up to $14.30 as of 2 April.

Significant investments

Bolstering his plans to remain at the helm, Dell told employees this week the company anticipates "making significant investments in research and development, capital expenditures and personnel additions.

"This includes hiring additional R&D, services and sales personnel in order to extend the depth and breadth of our capabilities and to increase the number of customers to whom such services and solutions are provided."

The company founder added that it is "likely that we will need to make additional acquisitions to complete our transformation."

Dell's plan for the future of his company includes competing "aggressively" in emerging countries and making "significant investments" to enhance its presence in Brazil, Russia, India and China, as well as expectations to "expand aggressively" in Asia, Latin America, Eastern Europe, the Middle East and Africa.

Following the planned transaction to take Dell private, the CEO expects to "significantly increase" investment in the company's PC and tablet business.

"While Dell's strategy in the PC business has been to maximise gross margins, following the transaction, we expect to focus instead on maximising revenue and cash flow growth with the goal of improving long-term sales and competitive positioning," Dell told his staff, without revealing what "the transaction" entails.

First revealed

Dell first revealed his plans to take the company private in February, and following this the deal entered a 45-day 'go-shop' period where other bids for control of the company could be made, and during this time both Blackstone and Icahn placed bids for the computer maker.

Icahn's offer includes purchasing $2bn of the firm's shares at $15 per share, and offering $2bn of cash equity financing.

Rules of the takeover state that Michael Dell can only make one counteroffer against Blackstone and Icahn, and if this is not accepted by a special committee set up by the computer maker then Dell will lose out, unable to place another bid.

No indication has been given of how long negotiations will take, though they are expected to last for several weeks.