Michael Dell Gets Backing of ISS in $24.4 Billion Bid to Buy Company

By Jeffrey Burt  |  Posted 2013-07-08 Print this article Print

ISS in its recommendation pointed to the strategy as a strong one, and said it believes Dell executives have done a good job with the transformation.

“Given that a business transformation in this industry, which is continuing to transform itself, will likely have a moving target, speed of transformation is especially crucial for success,” the group said. “The board, too, argues that the market has ignored Dell’s progress to this point, highlighting that as non-PC revenue has grown, overall trading multiples have contracted. Shareholders must consider, however, that despite recent trading levels—attributed to the PC business declining faster than anticipated—Dell’s acquisitions are exceeding management’s expectations. Despite poor PC fundamentals, in other words, ‘New Dell’ is still on track.”

Icahn has argued that Michael Dell’s proposal would benefit him and Silver Lake at the expense of shareholders, and that if the company turns around, he will benefit, not the shareholders who have been with the company for years.

ISS saw it a slightly different way. It’s more about Michael Dell and Silver Lake—rather than investors—assuming the risk involved in the company’s transformation.

“The risk may be less that he’s taking all the upside for himself than that he is trying to catch a falling knife,” ISS said in the recommendation. “From a public company shareholder’s perspective, if your CEO is willing to buy your falling knife for the privilege of catching it, there is probably a price at which you should let him.”

Some analysts agree. Roger Kay, principal analyst with Endpoint Technologies Associates, wrote in a column in Forbes that what Michael Dell is trying to do is not easy.

“Despite what Carl Icahn says, there’s no quick fix here,” Kay wrote in a column published before ISS’ recommendation was released. “The only thing Michael Dell is promising management, employees, and partners like Microsoft and Intel is a lot of hard work over a period that could easily stretch to five years or longer as he attempts to transform the company from a commodity PC supplier into an enterprise solutions provider, a difficult job with an outcome that is by no means certain.”

He also had harsh words for Icahn and his partners, saying that Icahn and “his vulture capitalists are waiting in the wings, hoping the deal fails, which would create an opening for what would surely be the dismantling of Dell as a viable operating company.”


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