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Reports: Blackstone and Icahn jumping into fight for Dell

Barb Darrow — Sat, 23 Mar 2013 17:59:57 +0000

Dell may have more than one serious suitor come Monday. After weeks of rumblings, the Blackstone Group and investor activist Carl Icahn are preparing their own rival bids to the Michael-Dell-and-Silver-Lake-Partner $24.4 billion buyout offer, according to reports on Saturday. There has been grumbling since that proposition was made public that Dell is worth more than the $13.65 per share that Mr. Dell et al. are offering. And now some potential purchasers are presumably ready to put money where their mouths are.

Dell sweepstakes gets more interesting

Bloomberg News, which has been on top of this story from the get-go, now reports that the Blackstone Group made a tentative offer for Dell late Friday, in time for the midnight deadline. The Wall Street Journal subsequently posted that activist investor Icahn, who has a 6 percent stake in the PC-and-server maker, is likewise making a bid. Both Blackstone and Icahn have been reportedly in the hunt for weeks. Icahn and others have said Dell is worth up to $20 per share.

None of the reports named their sources and none of the companies offered comment. A Dell spokesman had no comment.

Dell’s private equity backstory

Dell management has connections to both Blackstone and Silver Lake. Dave Johnson, who Dell poached from IBM in 2009 to head up its acquisitions strategy, left Dell for Blackstone in January. John Swainson, now president of Dell’s software group, consulted with Silver Lake Partners.

As one former Dell exec said via email: “So there you have John Swainson, previously Silver Lake and currently at Dell and Dave Johnson previously at Dell, and currently at Blackstone. Add Marius Haas previously KKR and now at Dell, and you have a pretty interesting PE clique there.” Haas is VP of Dell’s Enterprise Solutions group.

According to the Journal‘s sources, the entry of new bidders will extend Dell’s “go shop” period for another four days.

Mark Hurd? Seriously?

Adding more intrigue to the mix, Fortune reported last week that Blackstone Group might tap Mark Hurd, Oracle co-president, to lead Dell. That raised eyebrows. Hurd left Hewlett-Packard, where he was chairman and CEO, under a cloud of accusations about sexual harassment and misuse of company expense accounts.

HP rival Oracle then hired Hurd, presumably for his hardware expertise and possibly because Oracle CEO Larry Ellison wanted to taunt HP Chairman Ray Lane, a former Oracle president. That Dell, which competed tooth-and-nail with HP for PC and server market leadership, might be run by a former HP guy would be ironic.

It’s also not at all clear whether ownership by a private equity firm will right Dell’s course. It’s missed a lot of opportunity by being late or ineffectual in the mobile device and tablet market — areas where HP has also missed the mark.

Hurd is often mentioned as a successor to Ellison at Oracle. But the tech world is littered with former successors to Ellison who are now elsewhere. Just ask Charles Phillips or Tom Siebel or Gary Bloom or Marc Benioff. Or Lane. It’s by no means a certainty that Hurd will be any more successful and he may be looking for an out. Especially since, as one Wall Street analyst put it, Oracle’s promised hardware turnaround has failed to materialize.

DELL data by YCharts

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Dell buyout just got (much) more complicated

Barb Darrow — Thu, 07 Mar 2013 17:42:45 +0000

If Michael Dell and his cohorts at Silver Lake Partners thought their $24 billion buyout plan for Dell announced a month ago would be a slam dunk, they have another think coming.

Several other interested parties have surfaced, including billionaire Carl Icahn, and when Icahn gets involved things definitely get more complicated. In a letter to Dell’s board Icahn said the existing offer substantially undervalues Dell’s worth. Icahn put forward his own suggestion that the company remain public and issue a $9 per share special dividend, as reported in Bloomberg. Blackstone Group LP has also reportedly expressed interest in Dell.

If Dell’s board does not agree to his proposal, Icahn vowed “years of litigation.” He is not the only disgruntled shareholder. Southeastern Asset Management, which owns about 8.4 percent of Dell shares, maintains that the “take-private” price of $13.65 per share is not enough and reiterated its “demand that the Board of Directors pursue proposals that are more favorable to shareholders,” according to a note from Wells Fargo analyst Maynard Um. As of Thursday Dell shares were trading at $14.27, well above the offer price.

DELL data by YCharts

Dell hardware rivals Hewlett-Packard and Lenovo have also taken an interest in Dell, although whether they’re doing so more to get a chance to gather competitive intelligence from Dell’s books or if they’re genuinely interested in an offer is a huge question. The thought of HP buying Dell after its recent travails is mind boggling, but then again it’s done a lot of mind-boggling things over the past few years.

One former Dell executive, speaking on condition of anonymity, has been critical of the buyout from day one. In his view, this deal was done solely to benefit the new owners at the expense of shareholders. “The management team will trim the fat and resell [what's left] in a better operating margin scenario … Dell is playing out the buy low, sell high scheme,” he noted. However, he also maintained that the risk is high for the buyers. Things are changing fast, and the market may be cleverer than they are, he added.

It is somewhat astonishing that Dell, once the world’s largest PC company, finds itself in these straits. But then again, legacy players from the last IT era — HP, Cisco, Microsoft, Oracle and IBM — are all in the same boat. The technology world has shifted under their feet to a world of low-priced scale-out hardware and open source software with substantially lower margins. The advent, first of virtualization and then cloud computing, means that individual companies no longer have to buy nearly as much hardware gear as they used to and it’s by no means clear that all of these legacy powers will survive, let alone prosper.

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The Dell deal is done: Company goes private in $24.4B transaction

Barb Darrow — Tue, 05 Feb 2013 14:33:41 +0000

Private equity firm Silver Lake and Michael Dell are officially acquiring Dell, the world’s third-largest PC company, for $13.65 in cash in a deal worth about $24.4 billion.

Dell’s board unanimously approved a merger agreement under which Mr. Dell, the company founder and CEO, and Silver Lake have acquired the Round Rock, Texas-based company.

Mr. Dell, who owns about 14 percent of Dell’s shares, recused himself from discussions by a special committee of independent directors that was considering the deal, according to a statement e-mailed by Dell at about 6:30 a.m. PDT Tuesday morning. Financing includes a $2 billion loan from Microsoft.

According to Dell’s statement:

“A Special Committee was formed after Mr. Dell first approached Dell’s Board of Directors in August 2012 with an interest in taking the company private. Led by Lead Director Alex Mandl, the Special Committee retained independent financial and legal advisors J.P. Morgan and Debevoise & Plimpton LLP to advise the Special Committee with respect to its consideration of strategic alternatives, Mr. Dell’s proposal and the subsequent negotiation of the merger agreement.”

Reports that this deal was in the works surfaced more than a week ago, sparking questions about whether Dell could recover its mojo under a new arrangement. The company once led the world in PC sales and was a strong contender in servers. But in the past few year it, like other PC-and-server rivals, missed the boat in the shift to tablets and smartphones.

The fact that Microsoft’s participation comes in the form of a loan rather than an equity investment may be telling. Microsoft’s role in a new privately-held Dell has been the subject of much speculation. Dell has been a staunch Microsoft ally, preloading Windows and other Microsoft software on most of its gear.

But Microsoft, which also misplayed the tablet-and-smartphone transition, decided it would manufacture its own Surface devices, rattling its erstwhile hardware partners. Many of them, including Hewlett-Packard, Samsung, and Acer, now offer devices running Google’s Chrome OS, a Windows competitor. Skeptics think that a Microsoft with an ownership stake would have treated Dell as a captive audience for its software going forward. We’ll have to wait and see what input Microsoft, as a creditor, will have on Dell’s ability to play the field in software.

This story was updated continuously Tuesday morning with additional detail.

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Dell buyout deal is reportedly near

Barb Darrow — Mon, 04 Feb 2013 16:22:12 +0000

The specter of a privately held Dell is starting to gel into reality, according to several press reports.

Microsoft CEO Steve Ballmer

Citing unnamed sources, the Wall Street Journal reported that talks over the deal — at a price of about $13 or $14 per share – continued into Sunday night. The Journal reiterated earlier reports that the buyout, worth about $22 billion, would be led by Silver Lake Partners, a private equity firm (and former employer of John Swainson, president of Dell’s Software unit) and Microsoft. Dell founder and CEO Michael Dell who owns 16 percent of the company, would keep a stake, the paper reported.

The prospect of Microsoft — which is a long-time Dell partner — holding sway over a major hardware player continues to raise eyebrows. Cozying up with one supplier — say Dell, over others such as HP, Lenovo, Acer etc…. could obviously cause problems. But Microsoft appears to be losing leverage over its traditional PC partners, most of which could be counted on to pre-load Windows on virtually all of their laptops and desktops.

As a sign of changing times, HP on Monday announced its first Chromebook, a laptop that ships with Google’s Chrome OS, not Windows. Whether that is a reaction to all this Dell-Microsoft talk or was just an inevitable hedging of bets is unclear.

For its part, Dell, which is the third-largest PC maker, offers Project Sputnik, a developer-focused laptop preloaded with Ubuntu Linux, but all of its retail PCs ship with Windows, according to The NPD Group.

The Journal last week reported that Microsoft’s role in a new Dell was a bone of contention in the talks. It’s obvious that Microsoft would want to call the shots as to what software is loaded on Dell machines from laptops to servers.

DELL data by YCharts

In a research report, Sanford Bernstein analyst Toni Sacconaghi said a deal could make sense given that Dell is relatively inexpensive; that private equity firms have a ton of cash to spend and that Michael Dell is a “committed partner” with incentives and a stake that would strongly align him with the interests of private equity buyers.

Still, people who have watched both companies for some time have a hard time envisioning Mr. Dell “working for” Microsoft CEO Steve Ballmer so if Dell does go private with Microsoft owning a significant share, stay tuned.

This story will be updated as new details emerge.

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Will Yahoo turn out to be an egg on its buyer’s face?

Om Malik — Wed, 30 Nov 2011 16:51:28 +0000

Last night a source of mine sent me a text message about spotting Jerry Yang and David Filo (in a suit) at Palo Alto’s Four Seasons Hotel in company of some serious looking men, who spend a lot of time (and money) appearing to be self-important, a skill they perhaps learn in business school. His pithy message to sum it all up — looks like it is all going down.

The “it” is Yahoo’s very public auction of itself to the highest private equity bidder. In case you were hiding under a rock, here is a recap of rumors around Yahoo’s possible sale:

Silver Lake Partners wants to buy a minority stake in Yahoo for about $16.60 a share (valuing Yahoo at $20.6 billion or about 6 percent higher than yesterday’s closing price.) Silver Lake is working with Microsoft and Andreessen Horowitz.
The transaction is going to use PIPEs, private investment in public equity — a type of transaction long reserved for somewhat dubious companies.
Jerry Yang will stay on the board, but the investors will get three seats on the board, reports say.
Some folks believe that Jeff Jordan, former CEO of OpenTable, will become the chief executive of Yahoo and VC Marc Andreessen will become the chairman.
TPG Capital is considering offering a $1 per share more — aka $17.60/share.
Others are also eyeing the company including KKR and Blackstone Group.
Thomas H. Lee Partners is thinking about a bid.
Alibaba Group wants to buy Yahoo. Yahoo owns 40 percent of the Chinese company. Kara Swisher says they are thinking about teaming up with Softbank and Blackstone for their own bid.

600 million

Last time I wrote about Yahoo and its dismal and disastrous board of directors, I pointed out that 600 million users make up Yahoo’s biggest asset (and biggest stumbling block) and that company needed to clean house and then go shopping. Most of the people in comments disagreed and said that no self-respecting startup would want to be part of Yahoo.

Instead, most felt that the company should clean house and focus on a few pockets of growth inside the company — communications and shopping for example. I am betting buyers will be thinking along those lines, but will that be enough?

Whatever comes of these moves, the question is, can Yahoo be saved, and if yes, what is the value that can be retrieved? More importantly, will these private equity investors meet their own tech Waterloo in the fallen Internet star?

Dead Fish

As far as I am concerned, Yahoo is pretty far gone and is essentially a hollow shell of its former self. Its board – probably the single worst group in business – has managed to drip every last drop out of its body. There are few bright spots — Flickr, Yahoo Mail and Yahoo Shopping — but they cannot make up for the singular reality that the Internet that helped Yahoo thrive is no longer the Internet most people use.

Behavioral shifts in the Internet are so strong that Yahoo has no chance. The average U.S. Facebook user is spending over six hours a month ~~day~~ on the social network, Twitter is becoming the new news network and photos are thriving on mobile platforms.

The Internet of today is one of many screens. Yahoo, despite its mobile products and wonderful experiments with Yahoo TV, is still a one trick pony — online advertising. More accurately, the classic CPM-style advertising depends on large audiences, lots of page views and well, you get it, an old-fashioned way of thinking. When I think of Yahoo, I am reminded of a salmon farmed on carcinogens that is trying to move upstream in order to find growth.

Smart guys, but…

The consortium that is making a push for Yahoo is the same group that went out and bought Skype from eBay and turned around and flipped it to Microsoft, and in the process they made a lot of money.

However, this is not the same case. Skype was and still is on the right side of history. Usage behavior favors Skype, which continues to grow despite the company having ruined a great user experience. Skype is thriving despite all the meddling from the previous owners. Microsoft can’t do anything because Skype provides value.

What does Yahoo do that you and I can’t live without?

That’s right … nothing!

I have a lot of respect for Jeff Jordan (who would actually be one of my choices to run Yahoo), but I am sorry even he cannot do the impossible. Yahoo’s brain drain is legendary and it continues. There are more resumes going out of Yahoo than there are folks lining up to work for Yahoo. Unless there is a tech/broad economy collapse, that situation isn’t going to change.

Frankly, if you were a smart engineer or a product guy, why would you go work for a company, which is going to be owned by buyout guys who essentially nickel-and-dime your creativity to death? Why not go and work for a startup, where the chances of an upside, however remote they might be, are still there.

Or better yet, take a flyer and start your own company. Hell, if you need a job, these days even Google is pretty lax about hiring. The fact is that the buyout philosophy might work on old industrial-age companies, but I am not sure it would translate to Internet companies.

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Skype Founders Fight Their Way Into the New Skype

Om Malik — Thu, 05 Nov 2009 15:09:57 +0000

The great Skype legal mess is about to come to an end, thanks to a settlement between eBay — and private investors led by Silver Lake Partners — and Skype co-founders Niklas Zennstrom and Janus Friis. As part of the deal, the two Skype founders will get 10 percent of the company in exchange for allowing it to use the Global Index technology from their IP company, JoltID. They have an option to pay $83 million for another 3 percent of the new Skype. They will have two board seats on the 23-person board. These details were reported by Kara Swisher on her blog last night. I reported the news of a settlement this past weekend. Since then, more details have emerged that Index Ventures and Michael Volpi were both out of the deal.

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Skype CEO Lobbies for Skype on 3G

Om Malik — Mon, 21 Sep 2009 04:02:48 +0000

Josh Silverman, chief executive officer of Skype, wants to make sure that his Internet communications service works over the 3G networks of various phone companies including AT&T. He is going to be speaking tomorrow at an event organized by the Brookings Institute in Washington, D.C., extolling the virtues of an open mobile ecosystem and the importance of apps. The good news is that Silverman will have an audience that will include FCC Chairman Julius Genachowski, himself a champion of the open mobile Internet. (Genachowski is a member of GigaOM’s Top 15 Mobile Influencers.)

Skype is currently in the process of being carved out of its parent, eBay. A group of investors led by Menlo Park, Calif.-based private equity firm Silver Lake Partners are buying about 65 percent of the company from eBay for roughly $2 billion. For Skype, the next phase of growth is going to come from mobile phones. So far, Skype has benefited handsomely from the iPhone. In July 2009, the company said its iPhone application was downloaded about 4 million times.

“The usage on iPhone is pretty good, but it is still handcuffed,” Silverman said in an interview last week. He talked to me at length about all issues pertaining to Skype, except he wouldn’t discuss its lawsuit with JoltID. Silverman is convinced that Skype usage would go up if the service worked on 3G networks instead of being restricted to just Wi-Fi. Most people want to use their own mobile applications instead of being herded by carriers, Brookings noted in a study released last week.

Skype is one of those applications. “Most people want to use Skype over the wide area networks,” said Silverman. If it is allowed to work over the 3G network, then Skype starts to challenge the voice services of the cellular providers, something that isn’t likely to be viewed favorably by Ma Bell and its cohorts. “We want the telcos to get out of the way,” he argued.

“It is one Internet, and it doesn’t matter what (kind of) network and what device you use to get to it,” said Silverman. He sees no distinction between a PC or an iPhone, just as there is no difference in wired and wireless networks. Silverman might get his wish when we see faster 4G-styled networks powered by technologies such as Long Term Evolution and WiMAX become commonly available. At present, the 3G networks can be described as fragile at best, and they don’t have enough bandwidth to offer a decent Skype call experience.

The rest of my conversation with Silverman, including a discussion about his company’s platform strategy and its plans to take on the enterprise, will appear later this week.

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Skype Founders Sue eBay — Big Surprise

Om Malik — Wed, 16 Sep 2009 23:20:01 +0000

Skype co-founders Niklas Zennstrom and Janus Friis have sued eBay, the company that acquired their Internet telephony startup and turned them into billionaires. The lawsuit was filed by their company Joltid, which controls the core technology that powers Skype, in U.S. district court in Northern California. A similar battle is going on in a court in London.

The lawsuit clouds the agreed-upon $2 billion sale of Skype that values the Internet communications service at $2.75 billion and is being led by by private equity firm Silver Lake Partners as in addition to eBay, it targets Silver Lake, Index Ventures, Andreessen Horowitz and other investors in the deal. And as The New York Times’ Joe Nocera noted in an article earlier this month, eBay is on the hook for half the damages from any legal trouble.

And then, a few months ago, out of the blue, came the $2 billion bid from the Silver Lake consortium. One way it has dealt with the litigation risk is by persuading eBay to assume 50 percent of any losses resulting from the lawsuit. But that still doesn’t mitigate against the possibility that the founders could win the lawsuit — and put their creation, Skype, out of business.

This suit comes as no surprise to either myself or readers of this blog; I’ve been consistently pointing to this elephant in the room. I’ve heard from various sources of mine from across the pond that there is no love lost among eBay management, the Skype founders and some of the investors in the consortium that’s trying to acquire it.

Zennstrom and Friis were rebuffed by eBay management when they expressed interest in buying back Skype. In a clear breakdown of relations, last week, Joost, a company that was co-founded by Zennstrom and Friis, started an inquiry into the activities of its former CEO, Mike Volpi, currently a partner at Index Ventures. That action alone was a sign that the Skype co-founders aren’t going anywhere without a fight.

When eBay bought Skype in 2005, it didn’t acquire Joltid — a major corporate blunder by then-eBay management. Many of the guys who spearheaded the acquisition (and overlooked the fact that they needed to buy the core technology) long ago left the company. Still, as I’ve said before, eBay needs to be held responsible for this clear negligence of its duties.

So back in 2005, eBay paid billions for Skype but didn’t get the crown jewels, aka the technology. I reported this oversight back in 2005. How then-CEO Meg Whitman signed off on the deal, I still can’t understand. I mean, even a lemonade stand owner who can’t tie his shoelaces wouldn’t overlook something as simple as that. And what about the eBay executives who were shepherding that deal?

Photo courtesy of Casey Serin via Flickr

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