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Exclusive: Dell paying Blackstone's bills
March 27, 2013: 8:13 PM
reimbursing due diligence costs for potential buyers.
FORTUNE -- Dell Inc. is reimbursing The Blackstone Group's due diligence
costs on a possible buyout offer for the company, Fortune has learned.
Sources close to the situation say that Blackstone (BX)
repeatedly requested the concession, threatening to otherwise walk away
from the table during the "go-shop" process. Dell's (DELL)
special committee eventually favored the move, believing that it would
increase the odds of getting a superior offer.
But some on the special committee also thought it may require approval
from Silver Lake and Michael Dell, who had offered in February to buy the
company for $24.4 billion. After all, the winning bidder would be on the
hook (albeit indirectly) for such payments.
Silver Lake agreed to the request, perhaps because expense reimbursement
would be cheaper than defending legal accusations of impeding a competing
bid. But Silver Lake added a twist, asking that its group also be
reimbursed for sunk transaction costs (which would be in addition to the
already agreed-upon termination fees, were it to lose the deal). It also
asked that the ceiling for both agreements be $25 million. The special
Carl Icahn neither asked for, nor received, a similar deal.
Such reimbursement arrangements are unusual, but not unique. Occasionally
they are contingent on the rival suitor (i.e., Blackstone) making a formal
bid, but that is not the case here.
"If you're trying to get a higher bid for a $24 billion or $25 billion
company, offering up $25 million probably doesn't seem like too steep a
cost," explains a private equity executive who isn't involved in the Dell
Another buyout pro adds that private equity firms easily could bump up
against the $25 million figure on such a complex transaction, after paying
for accountants, lawyers and a third-party consulting study. He added: "It
basically gives Blackstone extra time to make up its mind, without it
costing them a dime. Free option."
Spokesmen for The Blackstone
Group, Silver Lake Partners and the Dell special committee declined to
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