Dell founder stands firm on buyout offer as vote delay mulled
Dell founder Michael Dell and his private equity partner Silver Lake would not raise their US$24.4 billion (HK$189.3 billion) bid for the world’s No. 3 PC maker even if a vote on their offer is delayed, two people familiar with the matter said.
The outcome of a shareholder vote scheduled for Thursday on the offer is too close to call. Dell may decide to delay the vote to gain time to win support for the deal, a person familiar with the matter said earlier.
With a nearly 16 per cent stake in Dell and ties going back three decades to the creation of the company out of his college dorm room, Michael Dell is seen as having much more at stake in the deal going through than Silver Lake, a financial investor that often walks away from deals.
During late-stage negations leading up to the Feb. 5 buyout agreement, Michael Dell had to subsidise the returns of Silver Lake, which declined to raise its contribution further. The Dell founder agreed to roll over his shares at US$13.36 each versus the US$13.65 offered to shareholders.
But the two people with knowledge of Michael Dell’s and Silver Lake’s plans said on Tuesday that any decision to increase the offer now would be taken jointly and that both parties have decided there will not be any bump in their US$13.65-per-share offer.
Activist investor Carl Icahn has spearheaded opposition to the bid and presented a proposal of his own with Southeastern Asset Management, although this will not go to a vote on Thursday.
Dell’s special board committee will likely make a decision by Thursday morning, based on whether enough votes have been cast to indicate the buyout would be blocked. Dell’s board has set up the special committee to independently assess the best option for shareholders, without influence from Michael Dell, who is the company’s chairman and chief executive officer.
Officials for Dell and its special board committee, and Silver Lake, declined to comment.
Dell shares ended trading on Tuesday down 1 per cent to US$13.02. That is below Michael Dell and Silver Lake’s offer of US$13.65 per share, indicating that more investors now see the outcome of the buyout vote as uncertain.
It is unusual for companies to delay such a special meeting of shareholders so close to the date but it is possible, said Jesse Fried, professor of law at Harvard University.
“Usually there is a delay because the management wants to lobby more shareholders,” Fried said. “Doesn’t usually mean the terms of the deal are going to change.”
But Dell’s special board already has had many months to convince shareholders. If the deal closes in October as envisaged, shareholders will have received an additional 24 cents per share in dividends since the buyout was announced.
Dell’s special committee has warned that the stock might drop to anywhere between US$8.67 and US$5.85 if shareholders reject the buyout, leaving them with a company in decline as consumers continue to snub desktop and laptop computers in favour of tablets and smartphones.
The war of words continued on Tuesday with Dell’s special board committee publishing a letter to the company’s shareholders reiterating its position that Icahn’s proposal would be too risky for them because it calls for saddling the company with debt while leaving it public.
Icahn hit back by releasing consolidated statements of income that he said showed how the company would still be viable if his proposal was adopted. His partner Southeastern issued a statement claiming Wall Street analysts who have been downbeat on Dell have previously got their estimates on the valuation of its peer Hewlett-Packard wrong.
Earlier on Tuesday, CNBC reported that BlackRock, which has a stake in Dell of more than 3 per cent, was likely to vote against the buyout. A BlackRock spokesman declined to comment.
On Monday, T. Rowe Price Group Inc, which has a roughly 4 per cent stake in Dell, affirmed its opposition to the buyout through a statement.
Many other shareholders, including Highfields Capital Management, Pzena Investment Management and Yacktman Asset Management, have also said they would vote against the offer because they see it as too low.
Nevertheless, all three major shareholder advisory firms have recommended Michael Dell’s offer, potentially influencing the decisions of a plethora of small mutual funds that typically follow their lead.
Icahn has argued since March that Dell’s founder is trying to steal the eponymous company away from shareholders almost 30 years after he founded it with just US$1,000.
Icahn and Southeastern announced their latest alternative offer for Dell last week. It calls for a buyback of up to 1.1 billion shares at US$14 apiece and a Dell warrant offered for every four shares held.
Each warrant would entitle the holder to buy one Dell share for US$20 each within the next seven years.
Icahn estimates the value of his latest offer at US$15.50 to US$18 per share. But for his proposal to be put forward for consideration by Dell shareholders, he must first succeed in having Michael Dell’s offer voted down and then win enough shareholder support to replace the members of Dell’s board with his own nominees.