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In leading Blackstone Group’s 11th-hour bid for Dell Inc, the acquisitions expert and famously tough negotiator has seated himself across the table from ex-boss and company founder Michael Dell. Their relationship has now become a crucial element in the battle over the largest private equity-led buyout since the financial crisis.
There may even be echoes of the way Nabisco Brands President John Greeniaus ended up switching sides from RJR Nabisco's CEO Ross Johnson in the struggle for control of the food and tobacco conglomerate in the leveraged buyout boom of the late 1980s.
Blackstone's Johnson, a former IBM executive with a reputation for working through the night rather than early in the day, may be joining the party late. But he could still up-end Michael Dell's original proposal to take the company private for $24.4 billion.
Whether the two former confidants can work together may decide the fate of the world's No. 3 PC maker.
The soft-spoken Red Sox and New England Patriots fan is described by people who have known him for a long time as likeable, smart and loyal. But that loyalty has been questioned twice as he has headed for the exits under controversial circumstances — once after more than 27 years at IBM, and then when he left Dell.
IBM unsuccessfully sued Johnson when he departed in 2009, alleging he violated a non-compete agreement.
Now Michael Dell — who told his executive team that Johnson would remain a close and personal adviser when he left to join Blackstone in January — is fighting to hold onto his company against a bid mounted by Blackstone less than three months later. Blackstone has not mentioned a role for his former boss.
“For all the good he does in an organisation, the exit always seems to burn him,” said a person close to Johnson.
“There was a lot of goodwill (at IBM) but in the last two minutes, he completely erases 25 years of history. Same thing at Dell.”
The stakes are high for both men. Michael Dell could lose control of a company he nursed from a dorm-room operation into a global personal computer maker. He doesn't only have Blackstone breathing down his neck but has to also contend with a competing offer from billionaire investor Carl Icahn. Meanwhile, Johnson's first deal could be one of the most ambitious in technology for Blackstone in years.
Among people who know Michael Dell and Johnson, there is little agreement about how well the two men get along now.
The relationship was still close when Johnson, who led some $10 billion worth of deals during his time at Dell, worked to bolster the company's non-PC-making businesses in areas such as software and enterprise services.
Johnson was said to have weighed the offer from Blackstone for a while before taking the plunge, one of the people said.
Three others said Johnson left Dell alienated, and that some members of top management were unhappy with his track record and had few qualms about letting him leave for the world's largest private equity firm.
“Dave came into Dell as a change agent. Change agents have a tough job, and their job is to break glass,” one of these people said. “And sometimes where you are breaking glass, people don't like what you are doing.”
A spokesman for Michael Dell declined to comment, while a Blackstone spokesman declined to comment on behalf of Johnson. A Dell Inc spokesman also declined to comment.
During more than three years at the Texas-based computer maker, Johnson oversaw 18 to 20 acquisitions, according to a Dell spokesman. He reported directly to Michael Dell.
People who know him say Johnson is more comfortable wheeling and dealing in smaller settings, less at ease in the spotlight of major presentations such as Dell's analysts' day.
He was also known for keeping late hours.
“You can ask anyone at IBM,” one of the people said. If Johnson's assistant scheduled a meeting early in the morning it probably “wasn't going to happen,” this person said.
Johnson oversaw the 2009 purchase of Perot Systems Corp, which catapulted Dell into the technology services market alongside IBM and HP. Other deals during his tenure included Quest Software, SecureWorks, SonicWall Inc and Wyse Technology.
At Dell, Johnson was brought in to help beef up the company's enterprise-related portfolio and diversify away from its reliance on PCs. To that end, Johnson went on an acquisition spree for small to mid-size companies. A big believer in the proper integration of acquired companies, Johnson often told team members that “the real success of a transaction is in the integration”.
The 61-year old brought discipline and rigour to Dell's M&A machine, instituting a playbook that aimed to standardise the M&A and integration process, one of the people said.
That playbook, for example, had templates for documents and contained a list of internal subject-matter experts.
While Johnson's strategy helped Dell expand its portfolio and reduce its reliance on PCs, the strategy was also criticized for being slow to offset a decline in PC sales and for failing to integrate the acquired companies fully with Dell to take advantage of scale.
But Carr Lanphier, analyst with Morningstar, said it is too early to tell whether Johnson's term at Dell was a success as his effort at diversification is not complete.
When Johnson joined Blackstone, the private equity giant had been looking for ways to bolster its technology team after having suffered a couple of dealmaker losses. These included Chip Schorr, who left Blackstone in 2010 after serving as its global head of technology investing.
Johnson is working on Dell with Chinh Chu, one of Blackstone's most experienced partners, who has been carrying out transactions for the firm since 1990.
Blackstone has reached out to a number of candidates who could run Dell should its bid succeed, replacing Michael Dell.
Sources involved in the fast-evolving discussions said Michael Dell and Johnson have competing visions for the company.
Two people close to Michael Dell have said he was concerned that Blackstone's buyout offer would dismantle the PC maker. Other people familiar with the situation have said Blackstone has considered a potential sale of Dell's financial services business as part of a strategy to turn things around.
Divestitures are not part of the plans by Michael Dell and his buyout partner, the private equity firm Silver Lake, two of the sources said.
