Dell Inc’s board is predicting another year of lackluster growth in the current fiscal year as demand for personal computers ebbs, underscoring the urgency behind the company’s decision to be taken private, documents show.
Sales for the year ending in January will slip to US$56.5 billion, and Dell’s PC business will shrink by US$10 billion over four years, according to projections in a proxy statement filed on Friday with regulators.
The documents outline a worsening outlook for Round Rock, Texas-based Dell that set the stage for negotiations — started in June by shareholder Southeastern Asset Management Inc — that included company executives, a special committee of the board, Silver Lake and their respective financial and legal advisers.
Dell is considering the resulting US$13.65-a-share bid alongside competing offers from Blackstone Group LP and billionaire Carl Icahn that it says could prove superior.
Chief executive officer Michael Dell told his board that going private would be the best course of action because it would let him boost spending on acquisitions, sales staff and research and development.
Undertaking those investments while trading on public markets would be “poorly received” by investors since they would “weaken earnings and cause greater volatility” in the stock price, Dell told the board during a presentation in December.
The documents also lend insight into the sometimes contentious negotiations between Dell’s representatives and private-equity firm Silver Lake, which came close to walking away from the deal in January, as well as a stalemate that was not resolved until Silver Lake upped its final offer by US$0.05 a share at the eleventh hour — ultimately boosting the bid 22 percent from US$11.22 at the outset.
CEO Dell sought to take his company private as slumping demand for computers and accelerating competition eroded sales and hammered the stock. Dell, who founded the company in a college dorm room in 1984, is betting that he can enact a turnaround more swiftly outside the glare of the public markets. Dell and Silver Lake may need to sweeten their offer as Blackstone and Icahn work to line up the financing required by their respective proposals, which were submitted during a so-called go-shop period that ended just after midnight on Saturday last week.
Blackstone’s plan values Dell at more than US$14.25 a share, while Icahn would pay US$15 a share in cash for as much as 58.1 percent of the stock, Dell said on Monday. Under both plans, some shares may continue to be publicly traded.
Dell met with Blackstone this week to discuss the company’s proposal, people with knowledge of the matter have said. The executive deems Blackstone’s offer management-friendly, one of the people has said.
Hewlett-Packard Co and Lenovo Group Ltd (聯想) also scanned Dell’s books in the go-shop period, people with knowledge of the matter have said.