Michael Dell Poised To Win Buyout Bid

Dell shareholders will today vote on whether CEO Michael Dell will be in charge of a public or privatised company.

On 9 September, activist investor Carl Icahn gave up his long-shot bid to detail Michael Dell’s $25 billion (£15.8bn) proposal to buy the world’s third-largest PC maker and take it private, though not without taking a few swipes at the CEO and the company’s board on the way out.

Shareholder Support

And now reports based on anonymous sources are coming out saying that Michael Dell appears to have the necessary shareholder support for his bid to be approved when the numbers are made public 12 September. According to a Bloomberg News report citing an anonymous source, investors who hold about two-thirds of the voting shares are supporting the deal.

It’s a significant change from only two months ago, when Icahn and other major investors were aggressively pushing back at the transaction, saying that it undervalued the company, and the shareholder vote had to be postponed three times over concerns that the CEO and financial backer Silver Lake Partners did not have enough shareholder support to approve it.

Those concerns appear to be in the past.

Michael Dell and the special committee appointed by the company’s board of directors to negotiate the deal announced in February a $13.65 (£8.63)-per-share bid to buy the company and take it public. Almost immediately the proposal came under fire from shareholders who felt the $24 billion-plus offer was too low.

Icahn subsequently brought his voice into the mix, becoming Michael Dell’s lead antagonist and sharply criticising the CEO and the board over not only the bid itself, but how the board was conducting the process. Icahn and another investor, Southeastern Asset Management, had proposed a counter-offer that included buying up to 1.1 billion shares at $14 (£8.85) each and keeping the company public. The special committee declined to declare that bid superior to Michael Dell’s.

Icahn Battle

Scheduled shareholder votes in July and August were delayed amid fears that the CEO would come up short in getting the necessary support to pass the transaction, which would represent the largest leveraged buyout since before the recession hit in 2008. Eventually Michael Dell raised his bid to $13.88 (£8.77) per share in exchange for changes in the voting rules that made it easier for him to get the necessary number of shareholder votes.

Icahn raged against the delays and changes and tried to sue to keep the deal from going through. However, a Delaware court ruled against his efforts to expedite the suit, and on 9 September, Icahn sent a letter to shareholders saying he was giving up the chase. However, he still said he believes the amount of the deal is too low and that actions by Michael Dell and the company’s board were unfair.

“Even in a dictatorship when the ruling party loses an election, and then ignores its outcome, it attempts to provide a plausible reason to justify their actions,” Icahn wrote. “But the Dell board felt they needed no excuse when they changed the voting standard and changed the record date of those eligible to vote, which allowed arbitrageurs to vote a much greater percentage of the stock when the polls reopen and scheduled the annual meeting for October. The board simply relied on the usual ‘business judgment’ catchall and Delaware law to uphold their actions. We jokingly ask, ‘What’s the difference between Dell and a dictatorship?’ The answer: Most functioning dictatorships only need to postpone the vote once to win.”

Tough Times

Like many other established tech vendors, Dell has been hammered by the rapid decline in worldwide PC sales. In the second quarter, Dell saw profits drop 72 percent even though revenues grew slightly, with PC revenues falling 5 percent.

Dell executives for several years have been trying to remake the company into an enterprise IT solutions and services provider. Michael Dell has argued that they would be able to accelerate their efforts if Dell were a private company that no longer had to answer to the short-term demands of Wall Street and its analysts.

In his letter, Icahn said he was disappointed that he didn’t win the tug-of-war with Michael Dell, though he was pleased the struggle resulted in a better price. He also noted that the CEO and Silver Lake “waged a hard fought battle.”

“We therefore congratulate Michael Dell and I intend to call him to wish him good luck (he may need it),” Icahn wrote.

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