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The No. 3 maker of personal computers published a 274-page preliminary proxy statement to inform Dell shareholders of how a $24.4 billion buyout proposal from founder and Chief Executive Michael Dell and private equity firm Silver Lake Partners was put together, and why it is the best of all the alternatives the company's board had explored.
Icahn has proposed paying $15 per share for 58% of Dell, while Blackstone has indicated it can pay more than $14.25 per share -- both deals involve saddling the company with a lot of debt and keeping it on public markets. Silver Lake's $13.65 per share all-cash offer would see Dell go private.
Dell's proxy statement did not directly pass judgment on the Blackstone and Icahn bids, yet it warned that any leveraged recapitalisation was risky if the company was to remain public.
"Even when taking into account the certain value distributed to stockholders, (a leveraged recapitalisation) would be unlikely to result in an aggregate value exceeding the $13.65 per share merger consideration and would present a number of risks and challenges," Dell said in the statement, referring to its special committee's review.
Such a move would decrease employee, customer and supplier confidence in the company's long-term prospects and potentially limit the company's ability to aggressively implement its long-term business strategy, Dell added.
Under all scenarios examined by Boston Consulting Group, which carried out an independent analysis for Dell, revenues are seen slipping every year to 2016. Dell's board expects fiscal 2014 operating income of $3 billion, down from last summer's internal forecast of as much as $5.6 billion, the proxy shows.
Long negotiations
Dell painted an account of arduous negotiations. It set up a special committee to evaluate all the company's options aiming to placate concerns over potential conflicts of interest facing Michael Dell.
The CEO owns 15.7% of the company he started in 1984 out of his college dorm room with $1,000. Under his take-private deal, Michael Dell and his investment firm would own 75.9% of the company, with Silver Lake owning the rest.
Dell said Michael Dell's and Silver Lake's post-buyout plan anticipated adding a significant number of sales personnel and boosting spending on research and development. There are no plans to embark on major assets sales following the buyout, it added,
The restructuring plan envisioned, were it to be carried out with Dell as a public company, would not be palatable to shareholders and the stock could suffer, Dell said.
Dell also said a strategic party, whose identity it did not disclose, expressed interest on January 24 to acquire its financial services business for its book value, estimated at between $3.5 billion and $4.5 billion, excluding debt.
A standalone deal of this kind would not benefit the company, Dell concluded.
Blackstone meetings
Michael Dell met with Blackstone and its buyout partner Francisco Partners on March 7 and 8 during a 45-day, so-called "go-shop" period when other bidders are invited to make offers, the proxy said, indicating that Blackstone explored early on the possibility of keeping Michael Dell as CEO.
Michael Dell also met earlier this week with Blackstone's senior managing directors Dave Johnson and Chinh Chu, although the outcome of those discussions has yet to become clear, a person familiar with the matter said on Friday.
Michael Dell has expressed concern that Blackstone's offer would dismantle the PC maker he founded in 1984, two people close to Michael Dell have told Reuters.
The founder is worried that the buyout firm's plans would be inconsistent with his strategy to reinvest in the company, they added.
Blackstone has already made an unsuccessful push to recruit Oracle Corp
Dell revealed that its special committee, chaired by businessman Alex Mandl and set up to assess all possible strategic alternatives for the company, also comprises of board members Laura Conigliaro, Janet Clark and Kenneth Duberstein.
The proxy statement shows how Silver Lake raised its bid six times by about $4 billion, or over 20%, during the course of the negotiations. The final agreed price of $13.65 per share in cash is below where Dell shares ended trading on Thursday at $14.33.
Before approving the deal and announcing it on February 5, Dell spent more than five months evaluating alternatives that included a leveraged recapitalisation and selling all or part of the business.
Dell was regarded as a model of innovation as recently as the early 2000s, pioneering online ordering of custom-configured PCs and working closely with Asian component suppliers and manufacturers to assure rock-bottom production costs.
But as of 2012's fourth quarter, Dell's share of the global PC market had slipped to just above 10% from 12.5% a year earlier, according to research house IDC. The proxy statement shows how the special committee wrested with the notion of staying public as the company's financial fundamentals weakened.
Dell's detailed regulatory filing also showed how Microsoft Corp's Windows operating system - which once had a chokehold over the whole PC market, is being undermined by other software.
Dell said it is seeing uncertain adoption of Microsoft's new Windows 8 operating system, which was launched with much fanfare last year, and an unexpected slowdown in Windows 7 upgrades by businesses.
