Blackstone Drops Dell Bid, Cites Declining PC Market

An anonymous reader writes "The Blackstone Group has notified Dell's board that it has ended its bid for the company after performing 'due diligence' on Dell's books. The private equity firm gave two reasons for its withdrawal in a letter to the special committee of the board reviewing privatization offers: the 'unprecedented 14 percent market decline in PC volume in the first quarter of 2013' and 'the rapidly eroding financial profile of Dell.' IBM's recently announced intention of withdrawing from the x86 server market may have also spooked investors. Blackstone was one of two outside bidders that emerged after founder Michael Dell and Silver Lake Partners announced a deal to take the company private for $24.4 billion. The remaining bidders did not comment on Blackstone's withdrawal; however, the Bloomberg piece notes that Dell's original deal with Silver Lake Partners contains language preventing the latter from backing out."

Comments

It's dead Jim

[tedgyz]

I'm a doctor, not an investor.

Re:It's dead Jim

[Anonymous Coward]

There is no such thing as a Haswell-based Atom. Haswell is the code name for the upcoming desktop/laptop skew that is i3/i5/i7. Atom is the low-cost, low-power line. The new Haswell chips are low power, and can fit in fanless chassis like tablets, but they'll likely retail for $400-$800. The upcoming Atom line is very nice (22nm, out-of-order, etc.) and should find its way into $250 tablets, but their performance & power is in the ballpark of an ARM A15. Intel hopes it'll actually be a bit better than the A15 but who knows.

Dell poisoned their brand

[Dr. Spork]

Dell just makes computers out of the same Chinese parts that everyone else uses to make computers. They once had an appealing brand, which gave them an advantage over all the other people who were selling an indistinguishable product. But this is not the case anymore. The "we don't care about our exploding capacitors" fiasco has forever tied Dell to an image of a company that cuts corners on quality. Sure, they kept some deals with the corporate and education sector, but my employer is going through hardware upgrades and now we can choose a new Dell or a new iMac. I won't miss you, Dell!

Re:Dell poisoned their brand

[Rich0]

They once had an appealing brand, which gave them an advantage over all the other people who were selling an indistinguishable product.

The reason Dell became big was because of really good just-in-time manufacturing control.

The biggest selling point for computers back when Dell became big was the CPU and its clock speed. It was also the fastest-depreciating component of the computer. In order to get good prices you needed to buy them in bulk, but if you stockpiled them and then took six months to sell them you'd be wiped out by the depreciation (you pay $1000 for a CPU that is worth $300 in six months).

Dell did build-to-order, mail-order, and just-in-time extremely well.

Build-to-order means that you don't end up with 47 models where you end up with 10 that don't sell well and have to be sold at firesale prices. It means that each customer gets exactly the computer they want, at the lowest price possible for that computer (well, assuming they want to buy a copy of Windows and MS Works). Their very-friendly website meant that people didn't have to walk down rows of PCs at the local retailer and try to compare the 47 different models their competitors were selling.

Mail-order means that they had little warehousing/distribution, which means less PCs stuck depreciating in the pipeline between consumers and the manufacturing plant. If they didn't sell as many model 3 video cards they just didn't order that many - they didn't have 30,000 PCs with those cards sitting in stores all over the country depreciating.

Just-in-time means that the part comes in from Intel/etc the day before it gets mailed out as part of a PC, or close to it. Again, inventory is rapidly depreciating, so you don't want to sit on anything. They were able to react to changes in the market - they didn't have a stake in one model or another selling better - they could just go where the customers were. If they offered a particular model and nobody bought it they didn't lose much, because they didn't build it until somebody ordered it.

Things like this are what made Dell big. Everybody else figured out what they were doing, and the MHz war wound down making the CPU less critical and slowing down depreciation.

Note - I'm not particularly close to the PC hardware market, so if there were other factors I'm all ears.

Re:Dell poisoned their brand

[Anonymous Brave Guy]

Not that I disagree with anything you said, but early Dell also had a reputation for quality in the days when the hardware/components industry hadn't consolidated as much as it has today, which parts you picked really did matter, and a lot of PCs suffered silly problems because of careless assembly. If you wanted a solid, reliable office PC, buying a Dell was about as safe a bet as you could place.

At the same time, their reputation for customer service and after-sales support might not have been anything special, but it wasn't bad either. They provided a good level of customisation earlier than many suppliers, probably because of the flexible process you mentioned.

Today, they've squandered both, with a succession of quality control problems and with lousy support and much hand-washing any time anything goes wrong. Apparently some of the equipment they make is still pretty good, when it works, but downtime can make a massive difference to the TCO for business equipment so that "when it works" is a serious drag on everything else they do, and much of what they make is nothing special anyway.

That leaves Dell is much the same position as Cisco: a big name brand that is hoping businesses will still buy their high-priced gear because of the name on the front while somehow not noticing that what's inside the box often isn't very good these days and you might find a better business relationship elsewhere as well. Unfortunately for them, the "no-one ever got fired for buying IBM" strategy doesn't really work any more, at least not for long.

This says it all...

[Anonymous Coward]

The Blackstone Group has notified Dell's board that it has ended its bid for the company after performing 'due diligence' on Dell's books.

They didn't like what they saw. Dell ran that company very lean and I bet that Blackstone couldn't figure out how to get the returns they want from any investment in that company. And since PC sales growth has stagnated, they couldn't count on expanding revenues and cash flows to support an obscene amount of leverage (ie debt) that these types of firms like to burden takeovers with.

Re:This says it all...

[Anonymous Coward]

And since PC sales growth has stagnated

No, not just the rate of growth. PC *sales* are in rapid decline, as in, fewer devices are being sold year over year, and this trend is expected to accelerate.

Quarterly Shipments Drop 14% as Windows 8 Fails to Stem Advance of iPads
PC Sales in Steep Decline
Intel Corp said its current-quarter revenue would decline as much as 8 percent and trimmed its 2013 capital spending plans, as personal computer sales drop due to the growing popularity of tablets and smartphones.

And about a million others. Average consumers are sick of the PC, and most of their needs can be served well by smartphones and tablets, which are much easier for them to use. Thus, that is where the market now goes. Couple that with a general dislike for Windows 8, and there's very little chance of anything but the bottom falling out, as the world shifts to mobile.

The fingers-in-ears from some quarters reminds me very well of how the 68000-based workstation community reacted to the rise of PCs back in the day: utter refusal to recognize what was happening.

Beware Icahn!

[Anonymous Coward]

Well Icahn's still in the game, he's claims to offer $15 a share vs Dell's $13.65 per share, I don't like Icahn. He tried to scam Yahoo shareholders (inc me) by claiming a deal was worth more than it actually was.

In the deal, he stripped Yahoo of all it's cash, handing it to shareholders, counted that money (the money we already owned) as money given by the Microsoft deal. He then added a loan from Microsoft which required Yahoo to pay it back with interest back to Microsoft. He counted that loan as income from the deal too. If a company CEO had done it, the SEC would be on him for fraud, but Icahn is a third party asset stripper and he's not obligated to be truthful about the value of a deal.

"Icahn's offer, which was also submitted the day before the deadline expired, includes purchasing $2bn of the firm's shares at $15 per share, and offering $2bn of cash equity financing."

So basically, Icahn is trying to buy only a portion of the shares (company is worth 22 billion), enough to scupper a full buyout. And there's the loan with interest.
He tends to list those as income to pretend an inflated figure on a buyout value. Loans are loans, you pay them back with interest, they're not income, they're not part of a buy price. If the company doesn't need the cash, they're a charge on the company. If the loan on Dell is to pay Icahns buyout, that's a leveraged buyout and its not worth squat to existing shareholders.

Dell shareholders, we Yahoo shareholders had bitter experience of that turd Icahn, you read his numbers very very closely, he tends to flat out lie in the summary about the true value of a deal. He didn't get rich by giving you his money. Classic games to watch out for: buying blocking positions to prevent a buyout, leverage buyout, buying a company by borrowing money against the assets of the company. Third party deals, e.g. agreeing with a competitor some gain if he poisons a company during buyout.

If you don't understand what I mean, look at the Yahoo deal. That would have stripped Yahoo of cash, made it dependant on Microsoft for short term money and made their income also dependant on Microsoft. MS for its part promised to buy a portion of shares in the future at a higher price. The likely block of shares that referred to was Icahns block, I believe that was to be his reward for poisoning Yahoo.

BEWARE!

Re:Then who instead of Dell?

[oldlurker]

just buy the model you want from whoever happens to make it. they all source parts from same companies and past performance on not having exploding caps(or other quality issues) is no guarantee whatsoever that the next batch they buy is any better, as shown by dell and others. acer used to have all their hinges break from their laptops for a year, but that again could not be guessed by looking at their models prior and after those.

what I'm trying to say is that brand loyalty is just a recipe for the brand to sell you shit.

I agree about not having "brand loyalty", but disagree about all being the same in terms of quality. In my experience the Lenovo Thinkpads fx are certainly more consistently solidly built and have less issues than other PC laptops. A long time ago Toshiba had a similar thing going for it, but lost it. If Samsung should prove to be able to step up (they are making good attempts in their top end), I'd be happy to switch to Samsung over Lenovo, so not married to Lenovo by any means.

Even as a PC user I admit that same argument can be made for Macbooks, even if they too are just using standard PC components and Chinese production, there is a build quality difference vs the cheapest PCs.

Re:bigass community bid

[geoskd]

It's **ONLY** $24 billion.

Control (that magical 51%) is only about $12 billion.

No, you need the full $24bil. If you try and do a piecemeal buyout, the price per share goes up, and so you end up coughing up the full amount anyway. That is why buyout offers are done this way instead.

As far as it being " only" $24bil, the largest kickstarter projects attract less than 100k contributors for an average of $100 each. This would require 1 million contributors for an average of $24k. It just isn't going to happen.

Kickstarter is not nearly as big as people think it is The whole site has only generated a few hundred millions dollars in its entire history. Its an interesting idea, but is not terribly useful beyond a very narrow scope of projects.