The battle for Dell Inc. (DELL:US) moved into a new, crucial phase as Michael Dell’s camp was given another week to round up votes for his proposed $24.4 billion takeover even as he was said to remain adamant about not sweetening his $13.65-a-share offer.
Facing almost certain defeat of the leveraged buyout, the Dell board postponed a shareholder meeting yesterday until July 24, a move that would allow Dell more time to persuade investors to change their minds or corral the 23 percent of eligible voters said to have abstained from casting ballots.
Chief Executive Officer Dell and Silver Lake Management LLC need a majority of holders to vote in favor of their transaction, excluding the CEO’s 16 percent stake. As of yesterday morning, Dell hadn’t lined up all of the 42 percent, or about 740 million shares, needed to prevail.
“There is going to be a lot of arm-twisting,” Jason Subotky, senior vice president at Yacktman Asset Management Co., said in an interview on Bloomberg Television. He said the founder’s offer is too low. “They are going to be pounding the shareholders to change votes and get people to vote.”
While opponents including Carl Icahn and Yacktman are pressing for a higher price, Michael Dell isn’t seeking more financing from Microsoft Corp. or the banks that secured debt for the deal, according to people familiar with the situation.
The current bid calls for Michael Dell to roll over about $3.6 billion worth of Dell stock and to contribute as much as another $750 million in fresh cash.
“The challenge this week for Dell and Silver Lake is to get out and contact shareholders, especially those who abstained,” said Jeff Fidacaro, an analyst at Monness Crespi Hardt & Co. “It’s going to get down to the wire.”
Dell shares (DELL:US) rose 1.9 percent to $13.12 at the close in New York yesterday. The proposal Dell and Silver Lake put to a shareholder vote represents a premium of 25 percent over the computer maker’s closing share price of $10.88 on Jan. 11, the last trading day before news of a deal surfaced.
Leading the charge against the deal is Icahn, who has made a series of offers aimed at blocking the buyout. With an 8.7 percent stake (DELL:US) in Dell, Icahn most recently suggested a buyback at $14 a share that would keep the company publicly traded, plus a warrant that could be exchanged for additional stock should Dell climb higher than $20.
“It is unfortunate, although not surprising,” that Dell’s board delayed the vote, Icahn said in a joint statement yesterday with Southeastern Asset Management Inc., which has teamed with him to scuttle the CEO’s buyout. “This delay reflects the unhappiness of Dell stockholders with the Michael Dell/Silver Lake offer.”
CEO Dell, who founded the company as a college student in 1984, in February proposed taking it private to stem years of ebbing sales and profit as consumers shift away from PCs to tablets and smartphones. He has argued it will be easier to make investments in mobile devices and data-center computing without the need to satisfy profit-hungry public investors.
Since announcing the buyout Feb. 5, the special committee of Dell’s board has argued that the company’s prospects of a turnaround are better outside of the public lens.
As of last week, investors opposed to the CEO’s transaction owned more than 20 percent of Dell shares, according to a report from shareholder adviser Glass Lewis & Co., which is backing Dell’s bid with Silver Lake. In addition to Yacktman, opponents may also include Harris Associates LP and Pzena Investment Management Inc. (PZN:US), according to the report.
Separately, T. Rowe Price Group Inc., which holds 4.1 percent, reiterated its opposition to the Dell-Silver Lake offer earlier this week, saying the buyout doesn’t “reflect the value of Dell.”
BlackRock Inc., Vanguard Group Inc., and State Street Corp. (STT:US), three of Dell’s largest shareholders, indicated late this week that they’re voting in favor of the Silver Lake-led deal, according to a person with knowledge of the matter. BlackRock had previously been leaning against the buyout, another person said. Those funds, like any Dell shareholder, can still change their votes before the final tally.
Representatives of all three investment firms declined to comment. Representatives for T. Rowe also declined to comment and Silver Lake didn’t respond to a request for comment.
David Frink, a spokesman for Dell, declined to comment on the vote delay.
The buyout by Dell and partner Silver Lake won key endorsements this month from Institutional Shareholder Services Inc. and two other influential proxy advisory firms. It also has the backing of a special committee of Dell’s board that evaluated potential transactions on the company’s behalf.
“There’s a lot of CEOs that have tried to take companies private to get away from the market,” said Michael Cusumano, a professor at the Massachusetts Institute of Technology’s Sloan School of Management. “It’s an uphill battle.”
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