Bloomberg News

Michael Dell Sweetens LBO With Dividend to Sway Investors

August 02, 2013

Michael Dell Sweetens Bid With Dividend to Sway Investors on LBO

Michael Dell, chairman and chief executive officer of Dell Inc. Photographer: Tony Avelar/Bloomberg

Michael Dell agreed to sweeten his proposal to buy Dell Inc. (DELL:US) to as much as $24.9 billion with a special dividend, securing concessions from the board committee that boost his odds of winning shareholder support for the deal.

Dell and partner Silver Lake Management LLC are offering a dividend of 13 cents a share on top of an already-increased $13.75-a-share bid for the computer maker, according to a statement today from the board committee. In exchange, the investors holding the stock as of Aug. 13 will be eligible to vote on the deal, and abstentions will no longer be counted as no ballots. The shareholder vote will be held Sept. 12.

The shares jumped the most since January to close at $13.68, signaling investors will back Michael Dell’s efforts after months of sparring with activists such as Carl Icahn, who pressed for a higher price or an alternative proposal. The shareholder (DELL:US) vote had already been delayed twice after Michael Dell failed to muster enough support for the deal.

“At this point, the momentum has clearly shifted toward Michael Dell,” Angelo Zino, an analyst at S&P Capital IQ in New York, said in an interview. “Just 24 hours ago it looked really bleak for him.”

Founder Dell is personally financing the extra dividend, or $230 million, by taking a further discount on his 15.6 percent stake, according to a person close to the situation. Dell who rolled his stake into the original deal at $13.36 a share, is now doing so at about $12.52, said the person, who asked not to be named because the matter is private.

Transformative Deal

Michael Dell and Egon Durban, the Silver Lake partner leading negotiations for the private-equity fund, hashed out the new deal with the board while they were in Hawaii, said the same person. They reached an agreement on July 31 and hammered out the final details yesterday, the person said.

The offer replaces a bid of $13.65 a share for the personal-computer maker, which shareholders were scheduled to vote on today at Dell’s headquarters in Round Rock, Texas. With the new proposal, shareholders also would be guaranteed to receive an 8-cent dividend next quarter, in line with previous periods.

The new offer adds as much as $470 million to the original bid, including the special dividend and the third-quarter payout, the board committee said. The total includes the $120 million value of the quarterly dividend.

Icahn’s Lawsuit

By taking the PC maker he started in 1984 private, founder Dell is seeking to transform it into a bigger provider of hardware, software and services for corporate-data centers, after years of ebbing sales and profit as consumers shift away from PCs toward computing on smartphones and tablets.

Icahn and fellow Dell investor Southeastern Asset Management Inc. have made a series of alternative proposals to derail a takeover by Chief Executive Officer Dell, including a $14-a-share buyback. Yesterday, Icahn filed suit to block Dell from changing procedures for voting on the deal, accusing the founder of trying to “ram through” the buyout.

They also asked the board to hold the annual meeting -- when shareholders would vote on his proposal if the LBO failed - - at the same time as the vote on the LBO. The board, however, scheduled Dell’s annual meeting for Oct. 17. Southeastern and Icahn objected to the new offer and revised voting rules in separate statements today.

“We believe that an increase of a mere 13 cents is an insult to shareholders,” Icahn said in his statement. “The war regarding Dell is far from over.”

‘Significant Downside’

Even so, there may be a limit to how far Icahn will go to block the deal, according to Jeff Fidacaro, an analyst at Monness Crespi Hardt & Co.

“He understands the alternative is that the deal does not get done, and there could be significant downside with the stock closer to $10 a share,” Fidacaro said in an interview.

The sweetened bid won over Matt Halbower, founder of Pentwater Capital Management LP, a Chicago-based investment firm with $2.9 billion in assets under management. While he was previously opposed to the deal, he’s now voting his 29 million shares in favor of the transaction.

“It is a fair result,” said Halbower. “I am confident a majority of the Dell shareholders will agree and the vote will be successful.”

Enterprise Computing

Before today, Dell shares had been trading (DELL:US) below the original $13.65 offer price since April, signaling investors weren’t confident about the buyout group’s ability to get the deal done, nor in alternatives proposed by Icahn and Southeastern. Since announcing the buyout Feb. 5, the company’s special committee has argued that the company’s prospects of a turnaround are better outside of the public lens.

Once the world’s top supplier of PCs, Dell has spent billions of dollars on acquisitions (DELL:US) over the past five years to add enterprise computing hardware, software and services, though the deals have yielded little return for investors. Meanwhile, the company has ceded the fast-growing mobile-computing market to Apple Inc. and devices running Google Inc.’s Android operating system.

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net; Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net; Jeffrey McCracken at jmccracken3@bloomberg.net


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