Michael Dell Raises Buyout Bid As Board Delays Vote

The future of Dell continues to hang in the air after the shareholder vote was delayed once again.

The vote had been rescheduled to take place on 24 July, after the 18 July vote had been postponed to decide whether the company would go private under the leadership of its founder or stay a public company.

Rescheduled Vote

Indeed, a small number of shareholders came to Round Rock, Texas, for the 24 July meeting, but the day came and went, and nothing was resolved. The shareholder meeting was called slightly after 5pm Central time, then it was immediately adjourned.

This was not a surprise to those in the know, because the delay procedure had been announced earlier in the day. The result: The crucial vote was postponed until next week to allow more time for the principals involved to negotiate, although they haven’t been able to come to terms for six months since founder and CEO Michael Dell revealed that he thought it best to take his company private with the help of Microsoft and private equity firm Silver Lake Partners.

The next step is a reconvening of the special Dell shareholder meeting 2 August at 9am Central. Michael Dell and his backers have extended their deadline for the committee running the meeting to consider their new proposal, in which they increased the stock buyout price by 10 cents to $13.75 (£8.97) per share. The CEO also said that $13.75 is his best and final offer.

Also on 24 July, Michael Dell posted an open letter to shareholders, essentially saying that he hopes they will vote for his proposal but also that he’ll live with whatever voters say. Dell also proposed that no-show shareholder voters should be counted only as non-voters, not as “no” votes, which is the way no-shows are currently counted.

Open Letter

Here is the text of his letter:

Dear Fellow Shareholders,

You have undoubtedly read many stories about our efforts to take Dell private. I wanted you to hear directly from me.

I believe that taking Dell private is the right thing to do for the company. We need to transform, and we need to do it quickly. The transformation is not without risks and challenges, and I believe that we can do what we need to do better as a private company than a public company.

When I came to the Dell board last August to ask if the board would consider the possibility of a going private transaction, I understood that the independent directors would control the process, and I made clear that I was ready to partner with whoever would pay the highest price. I encouraged every interested party to pay the highest price they could.

After one of the most thorough processes in history, the highest price that any of the parties was willing to pay was $13.65 (£8.91) per share. Although no other party has offered to pay more than $13.65 per share, Silver Lake and I have now increased our offer to $13.75 per share, an increase to public shareholders of approximately $150 million (£97.8m), which is our best and final offer.

I believe this offer is in the best interests of the company and our shareholders. Certain other parties have been proposing alternatives such as leveraged recapitalizations, sales of assets and other steps that I believe would be destructive to the company and that I do not and will not support.

The decision is now yours. I am at peace either way, and I will honour your decision. Our agreement requires the vote of a majority of the unaffiliated shares – your shares – to approve the transaction. Unfortunately, our agreement also provides that shares that do not vote count as votes against the transaction. Currently, over 25% of the unaffiliated shares have not voted. This means that even if a majority of the unaffiliated shares that vote on the transaction want to accept our offer, the will of the majority may be defeated by the shares that do not vote. I think this is clearly unfair.

When we offered to increase our bid to $13.75 per share, we also asked the Special Committee of the Board to change this unfair vote standard and allow the will of the majority of the unaffiliated shares that vote on the transaction to control the outcome. Particularly given the efforts of others to promote alternative transactions, and the ability of those parties to vote their shares when my shares do not count, it makes no sense whatsoever to skew the playing field even further by counting shares not voting as if they supported the opposition group.

If the Special Committee agrees to our increased bid of $13.75 per share, and agrees to create a fair and level playing field in which you can decide, I will look forward to your decision.

Sincerely,

/s/ Michael S. Dell