Blackstone Group LP pulled out of bidding for Dell Inc amid concerns about the computer maker’s finances and the worsening outlook for global PC sales, people with knowledge of the situation said.
The world’s biggest buyout firm made a non-binding offer to acquire Dell, according to a statement last month, rivaling a US$24.4 billion joint bid by founder Michael Dell and Silver Lake Management LLC, the largest proposed leveraged buyout since the financial crisis. Blackstone notified Dell’s special committee on Thursday that it is pulling out, one person said.
Blackstone’s enthusiasm for the transaction waned as global PC sales fell the most on record in the first quarter, and a closer look at the company’s financials soured the buyout firm on its recovery prospects, said the people, who asked not to be identified as the process is private.
Blackstone had assembled bankers and buyout engineers, as well as dozens of potential co-investors and consultants, near Austin, Texas, since April 8 to grill Round Rock, Texas-based Dell’s executives about divisions and model its prospects, the people said.
“Dell is facing downward price pressure on PCs, shrinking margins and lower cash flow, and that’s the last thing you want in a leveraged buyout,” said Alberto Moel, a technology analyst at Sanford C Bernstein & Co in Hong Kong. “You take a company private because you think you can do better; that you have some unidentified growth opportunity, or else ways to cut costs and improve margins. Dell has neither.”
Unlike Silver Lake, which has a significant Silicon Valley presence with an office in Menlo Park, California, New York-based Blackstone does not have a technology-focused investment record and views the deal as a riskier turnaround project, said one of the people familiar with the situation.
The Wall Street Journal reported on Blackstone’s decision earlier on Thursday. Under terms of its agreement with Dell, Silver Lake agreed it could not back out of its bid. If it tried, Dell could sue and get an injunction forcing Silver Lake to complete the deal.
A Silver Lake spokesman declined to comment, while a representative for Blackstone could not be reached. Dell spokesman David Frink declined to comment.