Blackstone Group LP's preliminary bid to take over Dell Inc. issetting the stage for a rare event: a bidding war betweenprivate-equity firms.

Blackstone, the world's biggest buyout firm, and activistinvestor Carl Icahn made separate offers last week that rival a$24.4 billion bid for the computer maker by Dell founder MichaelDell and Silver Lake Management LLC, according to a statement todayfrom Dell. The shares rose 3.2 percent to $14.59 at 9:31 a.m. inNew York, 6.9 percent above the Silver Lake offer.

While competition for buyout targets is often vigorous in theearly stages of auctions, private-equity firms, which buy companiesin expectation they can sell them later at a profit, are usuallyreluctant to make competing bids once a deal has been agreed.Go-shop periods, during which the buyout target can solicitcompeting offers after the initial agreement, too often arecosmetic affairs that give bidders little time to mount achallenge, said Erik Gordon, a business and law professor at theStephen M. Ross School of Business at the University of Michigan inAnn Arbor.

“The first bidder arranges it that way to protect its bid,”Gordon said in an e-mail. “The go-shop usually is ago-through-the-motions play.”

A civil antitrust lawsuit filed in federal court alleges thatfrom 2003 to 2007, peak years for buyouts, prominent private-equityfirm conspired to keep prices low in 19 jumbo-sized leveragedbuyouts and eight other deals, including Freescale SemiconductorLtd., which a Blackstone-led group acquired, hospital operator HCAHoldings Inc. and media company Clear Channel CommunicationsInc.

They did so by partnering up in “clubs” instead of competing fordeals, and by “standing down” whenever a club bid was near to beingsigned, the lawsuit alleges. The evidence in the suit includes ane-mail that Blackstone President Tony James sent to KKR co-founderGeorge Roberts after KKR made a counter-bid for Freescale.

“We would much rather work with the guys than against you,” thecomplaint said James wrote. “Together we can be unstoppable but inopposition we can cost each other a lot of money.” According to thecomplaint, Roberts replied: “Agreed.”

Blackstone, Silver Lake, KKR, Apollo Global Management LLC, TPGCapital and other major firms are defendants. Their lawyers haveargued the transactions represented legitimate business practices,and there was no pattern of winning and losing bids that wouldindicate collusion.

Go Shop

Earlier this month a judge narrowed the basis on which the casecould proceed, while rejecting a defense request to throw itout.

Dell's 45-day go-shop, which ended March 22, was beefed up toprevent the perception of a conflict of interest for ChiefExecutive Officer Michael Dell. Deals where the CEO is part of thebuyers' group are often the subject of shareholder scrutiny becausemanagement stands to benefit from a low purchase price.

Dell hired Evercore Partners Inc. to advise a special committeeof the board and to run the go-shop period. Michael Dell and SilverLake agreed to a number of restrictions in an effort to create adeal that would withstand shareholder scrutiny, people familiarwith the matter said last month.

One restriction on Michael Dell, 48, and Silver Lake is thatthey can only make one more bid, the people said. So if they moveto top Blackstone or Icahn once, they are unable to make a secondoffer. The breakup fee of $180 million — which Blackstone or Icahnwould have to pay if they block the deal — is half of the typicalfee for a deal of this size, these people said.

Michael Dell is willing to work with third parties on thealternative plans, the company said.

Blackstone has teamed with Francisco Partners, a SanFrancisco-based technology-oriented buyout shop co-founded in 1999by former TPG Capital partner David Stanton and Dipanjan Deb, andventure firm Insight Venture Partners. New York-based InsightVenture, started in 1995 by Jeff Horing and Jerry Murdock, hasraised more than $5 billion to invest in software, Internet, dataand technology services businesses.

Icahn's Offer

The group is bidding more than $14.25 a share, the computermaker said in today's statement. Blackstone is proposing aleveraged recapitalization transaction, in which investors couldchoose to get either all cash or equity, subject to a cap, if theywant to stay invested in Dell. The shares would continue to bepublicly traded.

Icahn is offering shareholders the option to roll over theirstakes or receive $15 a share in cash, with the amount of cash tobe used limited to $15.65 billion. The offer assumes thatSoutheastern Asset Management Inc. and T. Rowe Price Group Inc.,among the largest Dell investors after Michael Dell, wouldcontribute their stakes and won't receive a cash payment. If thecash portion is fully utilized, it would result in 1.04 billionshares, or 58.1 percent of current shares outstanding, beingacquired. If fewer shareholders decide to sell, the cash not neededwould be distributed as a special dividend.

T. Rowe Price Group Inc. declined to comment, spokesman BrianLewbart wrote in an e-mail. Lee Harper, a spokeswoman forSoutheastern Asset Management Inc., didn't immediately respond toan e-mail seeking comment.

Blackstone was involved in two other bidding wars in recentyears. In 2006, a group led by Blackstone was hammering out detailsof a final offer for Freescale when KKR lodged a tentative bid thatwas higher. The Blackstone group matched that offer and bought thecompany for $17.6 billion.

Last year Blackstone teamed up with chemicals maker InnospecInc. to try to trump an offer for chemicals producer TPC Group byprivate-equity firms First Reserve Corp. and SK Capital Partners.First Reserve and SK eventually prevailed.

Bidding wars among firms are unusual because most dealagreements, reached after months of due diligence by buyers, arepriced fairly and fully, said one private-equity executive, whoasked not to be named because the topic is sensitive for firms andinvestors. The fact that Dell attracted competing bids shows theoffer by Silver Lake and Michel Dell were perceived as too low, hesaid.

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