Newspaper article International Herald Tribune

Case for Higher Offer at Dell Faces Hurdles

Newspaper article International Herald Tribune

Case for Higher Offer at Dell Faces Hurdles

Article excerpt

The computer maker's founder, Michael S. Dell, and the buyout firm Silver Lake are under pressure to raise their offer, but it is unclear who might bear the cost of providing the additional capital.

More than a month has passed since Dell announced its planned $24.4 billion sale to its founder, Michael S. Dell. Since then, a number of shareholders have loudly complained that the price Mr. Dell has offered for the computer company is far too low.

With the stock trading well above the $13.65 a share that Mr. Dell has offered -- it was at $14.17 at the close Monday -- the billionaire may very well have to raise his offer.

But that would cost real money.

Here is one way of looking at it: Raising the bid by a dollar a share would cost about $1.8 billion, so getting to the $15-a-share bid that some analysts see as necessary would add about $2.3 billion to the deal's price.

It is unclear who might bear the cost of providing the additional capital. Mr. Dell is rolling over the about 16 percent of the shares that he controls, as well as providing about $750 million. His partner, the private equity firm Silver Lake, is paying about $1.4 billion.

Silver Lake is balking at adding more money to the deal, according to people briefed on thinking at the firm. Silver Lake's contribution is the largest it has committed to a deal, and so far it has said that it will not pay more. (Of course, that could well be a negotiating strategy.)

Executives at Silver Lake also said they believed that Dell was trading at about 8.7 times its projected earnings before interest, depreciation, taxes and amortization, a rich multiple that it has not reached in years. This is at a time when analysts are estimating that the company's earnings will decline nearly 10 percent, year after year.

The investment firm, negotiating on behalf of itself and Mr. Dell, initially bid about $11.22 a share last year, the executives said, before a series of negotiations with a special committee of Dell's board ended at $13.65.

One clear impetus to lead to a higher bid would be the emergence of a competing bid. The special committee has been overseeing a "go- shop" process aimed at flushing out better offers, and has attracted companies like Hewlett-Packard, Lenovo and Blackstone Group. …

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