Seeking Alpha
Long/short equity, deep value, special situations, contrarian
Profile| Send Message| ()  

It's official, we now have a three-way race for Dell (DELL). Bloomberg reported that the Blackstone Group has submitted an offer for the company. Such a bid commits Blackstone to hold takeover discussions with the company and according to Bloomberg sources, Dell has until Tuesday to respond to the offer.

Bloomberg also reported that Carl Icahn also made a bid for the company, valued at $15 a share plus a cap, just before the deadline for bids expired on March 23. This proposal would give shareholders the right to hold on to their stock if they so choose to, according to Bloomberg's sources.

My take

For starters, Blackstone (BX) is an investor and I think they might be looking at this deal as some kind of arbitrage opportunity to make a quick buck. Either it believes it can sell parts of the company piece by piece and make a profit from the initial price it pays for it, or hold on to it for several years and sell it back into the market via an IPO.

But since Blackstone does not really have detailed information on how the company works and what it might be worth, chances are that they will avoid overpaying for the company and make a bid slightly above what the LBO group would make.

As a side note, the WSJ reported that General Electric (GE) is also interested in buying parts of the company, irrespective of who turns out to be the winning bidder. This is interesting because whoever wins this deal (even the LBO group) might have a ready buyer for parts of the company and probably at a premium price.

Carl Icahn is also an opportunist like Blackstone. He might also break the company up piece by piece or simply sell the company back to the market via an IPO several years later. However I think Carl Icahn is a higher stakes poker player than Blackstone and I think he would be willing to outbid Blackstone by a little, even though he also does not have a clear picture of what Dell might be worth or what its potential might be.

So on the one hand, he will also be conservative, but he will definitely put in a better bid than Blackstone. On the other hand, he has come out publicly saying that he thinks the company is worth $22.81 a share. So at least with Carl Icahn, we have evidence to believe that he might be willing to put in a much better bid than Blackstone.

Third, we have the LBO group that among others includes Michael Dell, Silver Lake and Microsoft (MSFT). Remember what I have said about Microsoft in the past (please consider: Should Microsoft Buy Dell?). My sense is that Microsoft really wants to do this deal. I have outlined the reasons for this in the past.

Microsoft has the money to pay a little extra if needed. It can fork up several billion dollars more to do this deal with no problem at all. Microsoft's only problem is if antitrust issues are raised. As such, Microsoft would prefer to lay low, contributing only as much money as it needs to this deal for now.

However, if push comes to shove, and Blackstone or Carl Icahn make a better offer than the LBO group, I think that could give Microsoft an excuse in the eye of regulators to put more money on the table and take a bigger stake in this deal if it had to.

As such, my conclusion is that while Blackstone and Carl Icahn will bid slightly above the LBO group's current offer, in the end the LBO group will take no chances and make a much better bid than any of the other two contenders can afford to make.

Recommendation

I reiterate my previous recommendation of hold on Dell, for evidence is building up that we will have some kind of bidding war for the company, and stand by my previous recommendation that shareholders waiting this tug of war out will probably receive much more than the initial price of $13.65 a share that the Michael Dell LBO group initially offered.

Source: Dell: The Barbarians Finally Arrive At The Gate