Blackstone heading to Texas to firm up Dell strategy

NEW YORK/SAN FRANCISCO (Reuters) - Blackstone Group will visit Dell Inc's (DELL.O) headquarters on Monday to begin an in-depth analysis of the company, sources said, a strong sign the buyout firm is proceeding with an offer that could upset founder Michael Dell's $24.4 billion buyout bid.

Blackstone (BX.N) and billionaire investor Carl Icahn separately made preliminary proposals in late March that, if finalized, could be superior to the offer on the table from Michael Dell and private equity firm Silver Lake Partners LP.

The outcome of the auction would determine the future of Dell as well as Chief Executive Michael Dell, who founded the company in a dorm room in 1984 and turned it into the world's No.3 personal computer maker.

In its first step toward firming up a bid, Blackstone is working closely with Michael Dell in putting together a new business plan and actively talking to him about staying on in his current role as CEO, two people familiar with the matter said.

If Michael Dell gets on board with Blackstone's still-developing strategy for Dell, he would be Blackstone's preferred choice running the new company, the sources said. But the buyout firm also is putting an alternative executive plan in place.

Blackstone has hired an executive consulting firm that has reached out to about half a dozen high profile industry executives to help evaluate Dell's businesses and provide advice around strategy, the sources said.

The New York-based private equity firm and its consultant are also talking to a few of the executives for potentially running Dell, while some others are being considered for board positions, the sources said.

The executives that have been contacted by the executive reference firm include Cisco Systems Inc (CSCO.O) director Michael Capellas, former IBM Corp (IBM.N) services head Michael Daniels, Oracle Corp (ORCL.O) President Mark Hurd and Hewlett-Packard Co's (HPQ.N) PC boss Todd Bradley, the sources said.

Hurd, who sources previously have said was being pursued for a CEO job, has said he is happy at Oracle. Representatives for Capellas and Daniels did not return calls seeking comment. Bradley said in an email he was not contacted for a CEO position.

The leading external candidate for the Dell CEO job is Capellas, who has been in extensive discussions with Blackstone in recent weeks brainstorming on strategy for Dell and evaluating the industry, the sources said.

Capellas, best known as CEO and Chairman of PC maker Compaq, that he sold to Hewlett-Packard in 2002 for $25 billion, has been spotted entering and leaving Blackstone's Park Avenue headquarters several times over the past few weeks.

In recent years, Capellas served as Chairman and CEO of VCE, a collaboration between EMC Corp (EMC.N), Cisco and VMware Inc (VMW.N). He no longer holds those posts.

"No one knows who will ultimately sign on yet," one of the sources said. "(Blackstone) is exploring options with those people."

Executives from the private equity firm and its consultants will head to the Round Rock, Texas, Dell's headquarters on Monday, to kick off the due diligence that is expected to last about four weeks, people close to the matter said.

"What Blackstone is trying to do is develop a smarter structure that provides more options than what Michael Dell and Silver Lake seem to be doing," another said, adding that the firm is trying to figure out a different way for Dell going forward.

All the sources asked not to be named because the discussions are confidential. Spokesmen for Blackstone and Silver Lake declined to comment. A spokesman for Michael Dell was not available for comment.


Blackstone's team leaders for the bid include Dell's former head of strategy, Dave Johnson, currently a senior managing director at Blackstone. In the past, Johnson and Michael Dell have not seen eye-to-eye over a strategy that would take Dell forward, the sources said.

Johnson is working with Chinh Chu, one of Blackstone's most experienced partners, who has been carrying out transactions for the firm since 1990.

Michael Dell and Silver Lake envision Dell as an integrated company, with the No. 3 PC-maker continuing to focus on a diverse offering that includes enterprise software, servers, PCs and financial services.

Johnson's strategy, if Blackstone acquires Dell, would be to focus the company on enterprise software and accelerate the effort to bring together all the acquisitions made in this space, a source close to Johnson said.

In addition, under Johnson's plan, the company would exit its finance business, the source said, adding that Johnson also wants to make the company less Texas-centric and more global to attract more talented employees.

During Johnson's three years at Dell, he oversaw an aggressive acquisition strategy with some 18 to 20 deals, including the 2009 purchase of Perot Systems Corp, which catapulted Dell into the technology services market alongside IBM and HP.

But one of the sources cautioned that the due diligence process is still in the early stages, and that Blackstone is just starting to put together a business plan.

(Reporting By Nadia Damouni in New York and Poornima Gupta in San Francisco; Editing by Soyoung Kim, Edwin Chan and Tim Dobbyn)

Updated Date: Apr 06, 2013 23:00 PM

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