As Dell Inc. (DELL:US) shareholders brace to vote this week on a $24.4 billion sale to Michael Dell and Silver Lake Management LLC, the founder and his financial backer are said to disagree about the payout of breakup fees should the buyout fail.
Silver Lake considers itself entitled to a $450 million fee if an alternative proposal from billionaire Carl Icahn succeeds within a year, said a person familiar with the situation. Dell and his board hold that Silver Lake would only get reimbursed expenses, said two other people who also asked not to be identified because the matter is private.
The computer maker last week postponed the vote to July 24, prolonging months of jousting between the group led by Dell, who is also chief executive officer, and investors such as Icahn who want a higher price. Icahn proposes a $14 a share buyback for about 1.1 billion Dell shares, plus a warrant that could be exchanged for additional stock should Dell climb higher than $20. The company would remain public under Icahn’s plan.
Michael Dell and the board contend Silver Lake would get the $450 million only if the company is sold to a higher bidder and Icahn’s proposal doesn’t represent a superior takeover bid, according to the two people familiar with the company’s position. Silver Lake would also be entitled to the fee if the board changed its recommendation, according to the March 29 merger proxy filing.
The board’s position on the payment contradicts a committee presentation from June, which indicated that a $450 million termination fee would be incurred if Icahn’s proposal went forward. David Frink, a spokesman for Dell, declined to comment. A representative for Silver Lake didn’t immediately respond to a request for comment.
The shares of Round Rock, Texas-based Dell fell less than 1 percent to $13.02 at the close in New York, leaving them up 28 percent so far this year.
The disagreement may reflect increased distance between Dell and Egon Durban, the Silver Lake managing partner leading the deal for the private-equity fund. The two men, now neighbors in Hawaii, have known each other since their teenage years in Houston and Dell became an early investor in Silver Lake, which was founded in 1999.
One of the people said that when press reports were circulating this month that the Institutional Shareholders Investors advisory group might oppose the deal, Dell was unable to easily reach Durban to discuss whether they should sweeten their offer, as requested by a special committee of the board.
Dell and Durban later talked and ruled out increasing their bid, which they deem fair, according to people familiar to the situation, and ISS eventually supported the deal.
Durban canceled an appearance at Fortune’s Brainstorm Tech conference today after deciding that it wasn’t appropriate to make a public appearance so close to the July 24 shareholder vote on the buyout, said a person familiar with the matter.
If their effort succeeds, the men will have to embark on the challenging transformation of the 29-year-old PC company into a provider of software-based enterprise services.
The leveraged buyout requires the vote of the majority of shareholders (DELL:US), excluding Michael Dell, who owns a 15.6 percent stake. Absentees count as no vote. As of July 18, when the board adjourned the shareholders’ meeting, Dell hadn’t lined up all of the 42 percent, or about 740 million shares, needed to prevail.
To implement Icahn’s plan, shareholders have first to vote against the LBO and then have to give the activist investor control of the board in a proxy fight, for which Michael Dell’s vote count.
BlackRock Inc. (BLK:US), 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 voted against the buyout, another person said. Those funds, like any Dell shareholder, can still change their votes before the final tally.
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