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Dell Inc's board is predicting another year of lackluster growth in fiscal 2014 as demand for personal computers ebbs, underscoring the urgency behind the company's decision to be taken private, documents show.
Sales for the year ending in January will slip to $56.5 billion and Dell's PC business will shrink by $10 billion over four years, according to projections in a proxy statement filed over the weekend with regulators. Operating income will be stagnant at $3 billion, according to the documents, which shed light on a $24.4 billion buyout proposal led by Silver Lake Management LLC, as well as plans by Chief Executive Officer Michael Dell to accelerate a turnaround after going private.
The documents outline a worsening outlook for Texas-based Dell that set the stage for negotiations - kicked off in June by shareholder Southeastern Asset Management Inc - that included company executives, a special committee of the board, Silver Lake and their respective financial and legal advisers. Dell is considering the resulting $13.65-a-share bid alongside competing offers from Blackstone Group LP and billionaire Carl Icahn that it says could prove superior.
CEO Dell told his board that going private would be the best course of action because 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 countries, according to the filing with the US Securities and Exchange Commission.
Undertaking 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 during a presentation in December.
The documents also lend insight into the sometimes contentious negotiations between Dell's representatives and private-equity firm Silver Lake, which came close to walking away from the deal in January, as well as a stalemate that wasn't resolved until Silver Lake upped its final offer by 5 cents a share at the 11th hour - ultimately boosting the bid 22 percent from $11.22 at the outset.
CEO Dell sought to take his company private as slumping demand for computers and accelerating competition eroded sales and hammered the stock. Dell, who founded the company in a college dorm room in 1984, is betting that 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, which were submitted during a so- called go-shop period that ended just after midnight on March 23.
Blackstone's plan values Dell at more than $14.25 a share, while Icahn would pay $15 a share in cash for as much as 58.1 percent 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. The executive deems Blackstone's offer to be management-friendly, one of the people has said. Blackstone is open to keeping Dell on as CEO, another person said.
Hewlett-Packard Co and Lenovo Group Ltd also scanned Dell's books during the go-shop period, people with knowledge of the matter have said.