MICHAEL DELL is quite right to try and twist Blackstone’s arm. He is making his position as chief executive a key negotiating point in return for supporting its offer to cash out all willing shareholders in Dell, the company he founded from his university hall of residence room in 1984, at $14.25 per share.
Dell has a deal of his own on the table, for a leveraged buyout with Silver Lake Partners at $13.65 a share. However, higher offers from Carl Icahn and Blackstone that would still keep the company public and retain some minority shareholders have weakened the support from shareholders for Dell’s plan, so he is considering working with Blackstone as a least worst option.
Dell holds 15.6 per cent of the company’s shares. But there are better reasons for Blackstone to agree an ongoing leadership role for Dell. The idea of taking Dell private is founded on the belief that only if Dell can do what he wants with the company he built without having to listen to the short-term concerns of shareholders can he restore its fortunes, just as he built them up in the first place. Keeping the company publicly listed may limit his room for manoeuvre, but there is still everything to be said for trusting to the strategic vision of a man with Dell’s track record.
There’s no question that Dell is a company that needs a grand strategic overhaul. It made its name in a PC business that is falling off a cliff in the face of the rising market for tablets, not a significant part of its business, and smartphones, which it does not make. Dell’s sales are also declining faster than the overall PC market, as competitors like China’s Lenovo eat into its market share. Meanwhile the sector’s growth is strongest in emerging markets, where margins are tighter. And the firm’s move into IT solutions isn’t making up for the decline in its core market.
The question is whether Blackstone can cede Dell enough control for him to make a real difference. According to documents out last week, Dell’s base salary if the Silver Lake deal goes through would be $950,000 a year, plus bonus and stock options. More to the point, Dell’s draft contract for heading up Silver Lake’s private Dell gives him the right to walk away at any point for any reason. It would be Dell’s way or the highway.
Right now, looking at the numbers, Dell is a company with more history than future. The greatest asset it possesses is a visionary founder who still thinks he sees a way to turn it into a company built for the twenty-first century IT market.
Investors will need to weigh their options carefully. In supporting Blackstone over Silver Lake, they will be making Dell’s case for him that their priorities conflict with his instincts. So if it does succeed, Blackstone will not only need to put Michael Dell in charge. It will also need to fully support his strategic decisions, including the expensive ones. Dell is the only man who can save the firm – he must be given the tools to do so.