Michael Dell's Deal Looks Ever More Shaky...and What about that Dell Patent Portfolio?

By Tony Rizzo April 01, 2013

The last few weeks have brought us some interesting though hardly surprising news that the Dell (News - Alert) buyout game is beginning to move into the mid-innings - we're not quite at the 7th inning stretch yet, but the game is progressing. Michael Dell's hopes of pitching a shutout have long since passed of course, but the opposing players are now beginning to get their power hitters directly into the action and it is not going to be an easy coasting to the end of this game for Mr. Dell.

To recap, both Blackstone Group and Carl Icahn (who has floated an offer to acquire 58 percent of the company) are now moving quickly to put counteroffers on the table for Dell's shareholders to consider, and both of those offers are going to be a good deal sweeter - in the range of $15 per share initially - than the original $13.65 that was put on the table by Silver Lake Partners and Mr. Dell. It is true that a month ahead of the original buyout offer, back in early January 2013, Dell's stock was hovering around $10.80, but even at $13.65 most investors' shares were going to remain under water.

As we write today the share price has settled in around $14.28. We believe a deal will eventually end up being struck in the $17 range as we get into the ninth inning of this particular game. Interestingly, something that had not previously been explored has now also come into play relative to the overall value of Dell and its share price - its patent portfolio, which in the hands of the right CEO may prove to be much more valuable than it otherwise looks.

Early this week M·CAM, a firm that refers to itself as a "full–service innovation and intangible asset management firm" offered some thoughts on the potential value of Dell’s IP. Dell has in hand 3,449 patents as well as 1,660 patent applications pending as of the end of 2012. M·CAM is of the opinion that careful analysis of Dell's IP portfolio will reveal significant "unaccounted-for value.” This issue begs several questions:

  • First, has Michael Dell been so inept as Dell's CEO as to not understand the value of Dell's patent portfolio in terms of the financial value it can unlock?
  • Second, is Michael Dell fully aware of the patent portfolio's value and left it out of the equation in order to take advantage of it only after he acquired Dell at his discounted original offer?

Neither scenario speaks well of the original leveraged buyout offer. Dell investors both large and small should be very unhappy - perhaps they should be angry - about these issues that lurk behind the scenes.

Meanwhile Blackstone Group, after initially floating the idea that if the company ultimately acquired Dell it would look to bring in a new CEO, has now - according to the Wall Street Journal - begun to suggest it can live with Michael Dell continuing on as Dell's CEO. In fact rumors have it that Dell wants a CEO guarantee to play his shares in Blackstone's favor.

This begs another question - why the heck would anyone want Michael Dell to continue on as the CEO? It makes no sense in any form, shape or manner. Does Dell really provide any sort of strategic value to Blackstone in terms of helping it get a deal favorable to Blackstone done?

It's probably better to have Dell in your corner since Blackstone would still need to deal with Icahn, but it certainly will not help Dell the company going forward. None of the names Blackstone floated as possible CEOs (Michael Cappellas - give us a break!) make any sense to us. Dell needs someone that will bring new and forward thinking insights at the CEO level, not old school candidates from the old days of Compaq.

In any case, the stage is now set to hear the details of both Blackstone's and Icahn's counteroffers. Soon as they are fully detailed we can take that seventh inning stretch and get to the endgame.

Edited by Ashley Caputo

TechZone360 Senior Editor

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