Michael Dell likely couldn't have known when he proposed taking his company private last year that he would trigger a three-way contest between two private equity giants and one of Wall Street's most aggressive activist investors. The outcome of that battle now hinges on the billionaire Texan.
Few predicted a bidding war for a company struggling to re-model itself as its core market declines - let alone one that pushed its value above $24 billion. Behind the scenes, a less-public tug-of-war is emerging, centered on the 47-year-old founder himself.
Michael Dell, backed by Silver Lake Partners, is the biggest wild card now in separate buyout attempts by Blackstone Group and billionaire Carl Icahn, analysts said. Both have proposed offers for the company that appear to trump his $13.65-a-share bid, at least on paper.
But with Michael Dell owning roughly 16 percent of the company, any hostile takeover where the founder is not given a starring role in the new company could mean an unhappy major shareholder second-guessing its strategy from the sidelines.
On the other hand, if he decides to sell to Blackstone or Icahn, it could unnerve investors by giving the impression he doesn't see any longer-term upside for the company in that deal.
Blackstone and Michael Dell plan to meet soon, two sources familiar with the situation told Reuters on Monday. Blackstone is expected to negotiate very specifically Michael Dell's future role - and how much say he will end up with, analysts said.
Neither Blackstone nor Icahn has indicated what role they envision for him, and it's unclear what Blackstone will want of the CEO. But a third source close to the matter said the private equity outfit has considered selling the company's financing arm - which extends loans to PC buyers - to help bankroll the deal.
That has inspired speculation Blackstone is pondering hiving off Dell's parts - a breakup that would fly in the face of the founder's intention of re-investing in, and saving, his company.
Blackstone and representatives for Michael Dell declined to comment.
Former Dell strategy chief Dave Johnson, now leading the Blackstone camp, could prove instrumental in dealings with the billionaire. His ex-boss has credited Johnson for putting in place a solid M&A strategy, and they parted on amicable terms, two other sources familiar with the situation say.
"At the end of the day, he's going to want to have a say, whoever wins," said a separate source close to the deal. "He's made himself into more of a free agent."
"He's going to play around a little bit now and see what his position would be with each person."
As part of his deal with the Dell special committee running the auction process, Michael Dell has to explore the possibility of working with third parties on alternative offers.
Circumstances don't appear to favour a quick deal. The Texan native is very concerned that Blackstone's offer would dismantle the company, and that its vision is inconsistent with his own, two other people close to Michael Dell told Reuters on Monday.
Blackstone said in a letter to Dell's board that it would encourage but "not require" that the CEO roll over his equity.
"The real question is, if Blackstone wins, what they do with (Michael) Dell," said Steven Kaplan, a University of Chicago professor of entrepreneurship and finance. "They probably, other things being equal, would prefer him to roll over his equity."
Hands tied
To be sure, the company founder's sway in the entire deal-making process has been diminished somewhat by concessions he made, in return for having the company review his joint buyout proposal with Silver Lake.
The CEO has entered into a "voting and support" agreement with Dell's board as part of his buyout offer, which ensures that he will vote the same ratio of his total shares, and in the same way other non-affiliated shareholders decide to vote, if a rival offer is put on the ballot. That means that if 80 percent of shareholders choose to vote for the deal, then he himself needs to vote 80 percent of his own stake for the deal.
But the CEO has something in his favour - no one is deemed to know the company better than the man who started it from his dorm room in 1984 and built it into the world's No. 3 PC maker.
Blackstone, prior to indicating its interest to Dell's board, had made aggressive overtures to recruit Oracle president Mark Hurd to run Dell if it takes over, sources said. Hurd said on Monday in Japan that he was happy at Oracle and was not interested.
Michael Dell "can be an asset or a risk, depends on how he ends up playing," said Roger Kay, president of Endpoint Technologies Associates, which has a consulting relationship with Dell. "Any deal where he's not the CEO is riskier."
A new CEO brings uncertainty to the company, setting back its attempted transformation - already years in the making - into an enterprise-services provider, he said.
The last time Dell was sidelined, in 2004 when he handed the reins to long-time executive Kevin Rollins while remaining chairman, the company embarked on a steady decline, forcing Dell's return a few years later.
In three years, Dell went from a company that was firing on all cylinders to losing market share, a major battery recall, disappointing financial results and investigations into the company's accounting.
The best-case scenario could be if the CEO remains a major shareholder with the new company, said David Larcker, a professor at Stanford University's graduate business school.
"You would think he will have a serious impact on the strategy," he said. "That might be a good thing."
Most analyst and experts don't expect him to quit a company he founded at age 19. He could, however, do so if whatever eventual plan for Dell's future is too much of a departure from the one he has chalked out.
"It may not be a large possibility but it may happen," Kay said. "There could be some midnight or 3am, where he could just throw in the towel and say 'you guys take it'."
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