Dell's board is predicting another year of lacklustre growth in 2014 as demand for personal computers ebbs, underscoring the urgency behind its decision to go private, documents show.
The firm's sales for the year ending in January will slip to US$56.5 billion, and Dell's PC business will shrink by US$10 billion over four years, according to projections in a proxy statement filed with regulators. Its operating income will be stagnant at US$3 billion, according to the documents, which shed light on a US$24.4 billion buyout proposal led by private-equity firm Silver Lake Management and plans by CEO Michael Dell to accelerate a turnaround after going private.
The documents outline a worsening outlook that set the stage for negotiations started in June by shareholder Southeastern Asset Management and which included company executives, a special committee of the board, Silver Lake and their respective financial and legal advisers. Dell is considering the resulting US$13.65-a-share bid alongside offers from Blackstone and billionaire Carl Icahn that it says may prove superior.
Dell told his board going private would be the best move, as it would let him boost spending on acquisitions, sales staff and research and development, while investing in PCs and tablets and expanding Dell's reach in emerging markets, according to the filing with the US Securities and Exchange Commission.
Making those investments while trading on public markets would be "poorly received" by investors since they would "weaken earnings and cause greater volatility" in the stock price, Dell told the board in December.
Silver Lake came close to walking away from the deal in January and a stalemate wasn't resolved until Silver Lake upped its final offer by 5 US cents a share at the eleventh hour, boosting the bid 22 per cent from US$11.22.
Dell has sought to take his company private as slumping demand for computers and accelerating competition have eroded sales and hammered the stock. Dell, who founded the company in a college dorm room in 1984, is betting he can enact a turnaround more swiftly outside the glare of the public markets. Dell and Silver Lake may need to sweeten their offer as Blackstone and Icahn work to line up the financing required by their respective proposals, submitted during a so-called go-shop period that ended just after midnight on March 23.
Blackstone's plan values Dell at more than US$14.25 a share, while Icahn would pay US$15 a share in cash for as much as 58.1 per cent of the stock, Dell said on March 25. Under both plans, some shares may continue to be publicly traded.
Dell met with Blackstone last week to discuss the company's proposal, people with knowledge of the matter have said. Its CEO deems Blackstone's offer management-friendly, one of the people has said. Blackstone is open to keeping Dell on as CEO, another person said.
Dell fell less than 1 per cent to US$14.33 at the close in New York on March 28, 5 per cent above Michael Dell's offer. US markets have been closed since March 29.