A special committee formed by Dell Inc. recently announced that a “go shop” period has been awarded due to the merger agreement between Dell and entities owned by Michael Dell. Two proposals were submitted to the special committee, one by fund manager Blackstone Group (BX - Analyst Report) and the other by entities of activist investor Carl Icahn. The shares of Dell responded positively and have moved up.
The Special committee comprises four independent directors. After detailed discussions with independent financial and legal advisors, the committee concluded that both proposals had the credibility to result in deals in accordance with the terms of the existing merger agreement.
Michael Dell's $24.4 billion takeover bid is now in jeopardy because of the higher prices being offered by the prominent investors. Billionaire Carl Icahn is ready to form an alliance with Blackstone Group LP in order to take control of this leading computer maker away from its founder.
Icahn has reached a conclusion after completing its discussion with Blackstone, after the bids have come from the other parties in the deal, to put some amount on the table from Michael Dell and private equity firm Silver Lake Partners LP. This new joint bid offers much more return to the shareholders. The new bids are far better for shareholders compared to the offer made previously.
The inclusion of the third party has been approved and materialized by the special committee. The success of the company’s go-shop process has yielded two alternative proposals, which have the potential to create additional value for Dell’s shareholders.
Although privatization might have helped Dell move away from public scrutiny, the go-shop period has raised new problems for founder Michael Dell. It now appears that privatization could take some time because of the interest generated by outside parties.
This apart, the ever-increasing competition from companies such as Lenovo, Asustek, Apple Inc. (AAPL - Analyst Report) , IBM (IBM - Analyst Report) , Hewlett-Packard (HPQ - Analyst Report) , and Cisco Systems (CSCO - Analyst Report) has restricted Dell’s growth prospects. These players are growing at a faster rate than Dell, even in the emerging markets. We are also concerned about the conservative tech spending, continued weakness in the PC market in 2013, declining revenues and competition from its peers.
Currently, Dell has a Zacks Rank #3 (Hold).