Michael Dell and Silver Lake Management LLC, approaching a deadline to woo Dell Inc. (DELL:US) shareholders to vote for their $24.4 billion buyout, consider the $13.65-a-share bid to be their best and final offer, people familiar with the situation said.
The buyout group’s view is that the bid represents a significant premium, considering borrowing costs have risen and Dell’s earnings have shrunk amid a deterioration in the personal-computer business since the deal was announced, said the people, who refused to comment on the record because they consider it unnecessary.
A special committee of Dell’s board, which believes the buyout group has room to raise the offer, hasn’t been formally told by the buyers that their bid is best and final, said another person with direct knowledge of the situation. The committee is contemplating delaying the July 18 deadline for shareholder votes on the buyout by about a week, seeking a higher bid or time to win support for the deal, that person said yesterday. Adjourning the vote would give shareholders (DELL:US), who can recast their votes up until the last minute, more time to change their minds, according to the person.
“Instead of executing the vote and maybe not getting it passed, Dell may need to postpone the vote until they know it could get passed through,” said Jeff Fidacaro, an analyst at Monness Crespi Hardt & Co. in New York.
The group is likely to make a decision by tomorrow morning if the votes already cast against the buyout are enough to scuttle it, said the person. The June 3 record date, by which one had to invest to be entitled to vote, won’t change, said the person.
A delay would prolong Dell’s struggle for control against billionaire investor Carl Icahn, who has pushed for months for the founder to raise his bid. BlackRock Inc. (BLK:US), which has a 4.4 percent stake in the third-largest PC maker, voted against the buyout, according to the person.
Icahn and Southeastern Asset Management Inc., which holds a 3.98 percent Dell stake, urged the board not to postpone the vote in an open letter to shareholders today.
“Quite frankly, if the special committee doesn’t like the $13.65 price, then as we see it, they should have not approved the Michael Dell/Silver Lake transaction in the first place,” they said in the letter.
David Frink, a spokesman for Round Rock, Texas-based Dell, declined to comment. Lauren Post, a spokeswoman for BlackRock, declined to comment, as did a representative for Silver Lake.
T. Rowe Price Group Inc., which holds (DELL:US) 4.1 percent, reiterated its opposition earlier this week, saying the buyout doesn’t “reflect the value of Dell.” To succeed, the buyout needs to win approval from a majority of holders excluding Michael Dell, who has about a 16 percent stake.
Investors opposed to the transaction own more than 20 percent of Dell shares, according to a report last week from shareholder adviser Glass Lewis & Co., which is backing Dell’s bid with Silver Lake. Opponents may also include Harris Associates LP, Yacktman Asset Management Co. and Pzena Investment Management Inc. (PZN:US), according to the report.
The special committee of Dell’s board repeated its support for the Silver Lake-Dell offer in a statement yesterday.
Dell fell (DELL:US) 1.5 percent to $12.82 at 12:12 p.m. in New York.
The extra yield investors demand to hold Dell’s bonds rather than government debt has climbed to 359 basis points, or 3.59 percentage points, from 308 on Feb. 5, Bank of America Merrill Lynch index data show.
Icahn, now Dell’s top outside holder with an 8.7 percent stake, has made at least four attempts to derail the buyout. In his latest effort last week, he pledged to sweeten his offer to acquire about 1.1 billion Dell shares at $14 each by adding warrants that investors could exchange for additional shares. The latest proposal’s value to shareholders would be about $15.50 to $18 a share, Icahn said last week.
“We do not believe that Mr. Icahn’s proposal is superior to the certainty of value offered by a sale of the entire company at $13.65 per share,” the special committee said. “A sale at a premium remains a superior option to a leveraged recapitalization.”
Icahn previously said he was preparing to exercise appraisal rights in court, and urged fellow shareholders to do the same. Dell holders who don’t vote in favor of the deal would be eligible to exercise those rights under the General Corporation Law of Delaware. They would be entitled to receive a cash payment equaling the “judicially determined” fair value of their Dell shares, a process that could leave them with more or less than the $13.65 offer price.
Michael Dell is attempting to take his company private, almost three decades after he founded it, to help transform the PC maker into a contender in data-center equipment and software. His proposal won key endorsements last week from Institutional Shareholder Services Inc. as well as Glass Lewis.
Dell may need years to effect a turnaround if the Michael Dell-Silver Lake and Icahn deals don’t come to fruition, and the stock could fall to less than $9, said Jayson Noland, an analyst at Robert W. Baird & Co. in San Francisco.
“There’s substantial downside if these deals were to go away,” Noland said. “The stock could go to 8-something or even lower. The PC market is bad and Dell is heavily exposed.”
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