Blackstone pulled out of bidding for Dell amid concerns about the personal-computer maker's finances and the worsening outlook for global PC sales.
In a letter to Dell's board, Blackstone cited an "unprecedented" 14 per cent market decline in PC volume in the first quarter, according to a statement yesterday.
The world's biggest buyout firm made a non-binding offer to acquire Dell last month, rivaling a US$24.4 billion joint bid by founder Michael Dell and Silver Lake Management, the largest proposed leveraged buyout since the financial crisis.
Blackstone's enthusiasm for the transaction waned as global PC sales fell the most on record last quarter.
Blackstone had assembled bankers and buyout engineers, as well as dozens of potential co-investors and consultants, near Austin, Texas, since April 8 to grill Dell's executives about divisions and model its prospects, people familiar with the situation said.
Blackstone cited "the rapidly eroding financial profile of Dell" and said the market decline in PC volume was "inconsistent with management's projections for modest industry growth".
"Dell is facing downward price pressure on PCs, shrinking margins, and lower cash flow, and that's the last thing you want in a leveraged buyout," said Alberto Moel, a technology analyst at Sanford Bernstein. "You take a company private because you think you can do better; that you have some unidentified growth opportunity, or else ways to cut costs and improve margins. Dell has neither."
Dell's operating margin narrowed to 4.88 per cent in the fiscal fourth quarter through January, from 5.81 per cent in the year-earlier period, data compiled by Bloomberg show.
Cash flow from operations fell to US$1.44 billion from US$1.84 billion a year earlier, the data show. The company reported an 11 per cent drop in sales, to $14.3 billion.
Unlike Silver Lake, which has a significant Silicon Valley presence with an office in Menlo Park, California, New York-based Blackstone does not have a technology-focused investment record and viewed the deal as a riskier turnaround project, one of the people familiar with the situation said.
PC sales are plummeting as buyers opt for smartphones and tablet computers while Microsoft's newest operating system met with lackluster demand, researcher IDC said. Global PC unit shipments fell to 76.3 million, worse than the 7.7 per cent decline IDC had forecast.