Just as political elections are determined by precisely who comes out to vote, so it may be with Michael Dell’s proposed $24.4 billion buyout of the computer maker he founded 29 years ago.
The chief executive officer’s bid for Dell Inc. (DELL:US) comes to a head -- again -- today in a vote whose success may hinge on prodding hold-out shareholders to cast ballots. A special committee of Dell’s board postponed the first scheduled vote on July 18, when the buyout faced likely defeat.
After days of wooing by Dell and his camp, some 18 percent of eligible shares still hadn’t voted as of two days ago, a person familiar with the situation said. That works against the CEO because absentees count as “no” votes. About 20 percent of shareholders, including billionaire Carl Icahn, who has an alternative proposal, have said they oppose Dell’s bid.
No outcome is certain, with investors able to recast votes until the last minute at the meeting in Round Rock, Texas, which is scheduled for 6 p.m. New York time. To succeed, the $13.65-per-share bid to take the PC maker private needs the approval of the majority of the company’s 740 million shareholders (DELL:US), excluding Michael Dell’s 15.6 percent stake.
“When you look at the high investor opposition and you combine that with a lack of voters showing, that’s a bad recipe for trying to get the deal approved here,” said Angelo Zino, an analyst at S&P Capital IQ with a hold rating on the shares.
David Frink, a spokesman for Dell, declined to comment.
Shareholders’ hard-to-get posture may be a show of brinkmanship. Some board members are waiting for Dell and financial partner Silver Lake Management LLC to either raise their bid or publicly declare it their best and final offer, according to a person who asked not to be named discussing private matters. The Dell camp has no plans to sweeten the offer, another person said.
The get-out-the-vote drive by Dell and his buyout group’s proxy solicitors and advisers is focused on three main types of investors, another person familiar with the effort said. The targets are overseas funds that don’t typically vote in U.S. companies’ elections; banks holding shares as a hedge for swap trades; and exchange-traded funds that may not typically vote in proxy matters.
One goal is to at least close the gap by persuading some of the missing investors to vote in proportion with other shareholders, rather than letting their abstentions count as “no” votes by default, this person said.
Michael Dell has met personally with key institutional investors, including Franklin Resources Inc. (BEN:US), the mutual fund firm that holds a 1.97 percent stake in Dell, people familiar with the situation said. The founder is using a presentation he filed on June 21 with the U.S. Securities and Exchange Commission, in which he said that Icahn’s bid would hamper efforts to transform the company into a broader provider of business products and services.
Icahn and partner Southeastern Asset Management Inc., which together hold about 13 percent of Dell, proposed in June that the company instead buy back 1.1 billion shares for $14 a share, keeping the company public. This month they proposed adding a warrant that would entitle holders to get more Dell shares if the stock hits $20.
“You can think of it as a bird in the hand versus two in the bush,” said Jayson Noland, an analyst at Robert W. Baird and Co. with a neutral rating on the shares. “Icahn’s proposal has more upside, but there’s some optionality” while the offer from Michael Dell and Silver Lake has a more certain benefit.
In an open letter yesterday, Icahn called Dell’s special committee “unconscionable” for what he said was its actions in support of the CEO-led buyout, including the delayed vote.
“After six months, the time for soliciting is over,” Icahn and two Southeastern executives wrote. “It’s time to vote. Do not move election day again. This is not a banana republic.”
Dell, in his June 21 regulatory filing, said Icahn’s proposal would add substantial debt (DELL:US), decrease financial flexibility and “hurt the company’s ability to weather an economic or business downturn.”
This kind of campaigning has won over some institutional investors, such as BlackRock Inc. (BLK:US), Vanguard Group Inc., and State Street Corp. (STT:US), which flipped their vote in favor of the deal, people close to the situation said last week.
Dell also gained the surprise support on July 8 of Institutional Shareholders Services, an advisory firm often followed by institutional investors.
For Icahn’s proposal to succeed, shareholders have to vote against the deal today and give the activist investor control of the company in a proxy fight, for which Michael Dell’s share-votes count.
Dell may trade at $9 a share if the leveraged buyout fails, Deutsche Bank AG analyst Chris Whitmore, predicted in a July 19 report to investors. The shares have rose 27 percent so far this year, closing at $12.88 yesterday.
“A prolonged proxy fight may occur and the future of the company becomes uncertain,” Whitmore said.
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