The odds are mounting against Michael Dell’s $24.4 billion bid to take Dell Inc (DELL). private.
Institutional Shareholder Services, an investor-advisory firm, is leaning against the deal, according to people with knowledge of the matter. A negative recommendation by the influential firm would increase the likelihood that investors will oppose the proposal -- unless Michael Dell and his partners sweeten the $13.65-a-share bid, said the people, who asked not to be identified because the talks are private.
While the banks financing the transaction are now working on a contingency plan to increase the offer, it’s unclear whether buyout partner Silver Lake Management LLC will continue backing Michael Dell, the people said. Silver Lake is wavering amid a worsening performance by the computer maker and the deterioration of debt markets since the transaction was announced on Feb. 5, the people said.
Dell’s special committee of the board recently encouraged Dell and his partners to increase their offer, and Dell and Silver Lake have not yet responded, the people said.
“Michael has to raise his price or lose the company he thinks is his company,” said Erik Gordon, a University of Michigan business professor. “The special committee has been his biggest supporter, and when your biggest supporter tells you your offer isn’t going to win, you pay attention.”
Michael Dell expects the company’s stock to fall to about $7.90 a share, based on trailing earnings, if the LBO is voted down, said a person with direct knowledge of his thinking.
Dell fell less than 1 percent to $13.31 at the close in New York.
Representatives for Silver Lake and the special committee of Dell’s board declined to comment, as did David Frink, a spokesman for Round Rock, Texas-based Dell, and a representative of ISS.
ISS has yet to make a final determination on the deal and could still advocate a vote in favor, one person said. CNBC reported yesterday that ISS was likely to vote against the deal.
The developments are the latest twist in the months-long tug of war over Dell, set to culminate in a shareholder vote on July 18. The deal has faced opposition from shareholders who say the terms undervalue Dell.
Billionaire Carl Icahn said this week that he secured $5.2 billion in debt financing to support his third and last attempt to scuttle the LBO. Icahn, Dell’s second-largest shareholder with an 8.7 percent stake, is proposing that the company make a tender offer for about 1.1 billion shares at $14 apiece.
The activist investor said the buyback would address two shortcomings of the LBO offer: that it’s too cheap and that it doesn’t give shareholders the opportunity to profit from any improvement in Dell’s performance.
Dell’s special committee of the board, which last month urged shareholders to vote for Michael Dell’s buyout, is currently reviewing Icahn’s offer.
Icahn’s proposal would add substantial debt, decrease financial flexibility and “hurt the company’s ability to weather an economic or business downturn,” Michael Dell said in a June 21 regulatory filing. “It would also jeopardize customer perception and employee retention.”
Icahn’s plans could succeed only after shareholders vote against the buyout and eventually give him control of the board in a so-called proxy fight.
The buyout’s success requires approval by a majority of shareholders, excluding Michael Dell, who has a 15.6 percent stake.
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