Dell Delays Vote on Buyout Bid In Hopes of Rallying Support

 
 
By Jeffrey Burt  |  Posted 2013-07-18
 
 
 

Dell Delays Vote on Buyout Bid in Hopes of Rallying Support


A decision on Dell's future will have to wait for another week.

Dell's board of directors adjourned a meeting scheduled for July 18 where shareholders were to vote on the $24.4 billion buyout proposed by founder and CEO Michael Dell and private equity firm Silver Lake Partners that would take the company private.

The meeting now is scheduled to resume July 24 at 6 p.m. ET.

The move comes after several days of speculation that the special committee assigned by the directors to investigate options for the company's future would postpone the vote. The committee reportedly was concerned that the deal didn't have the support of enough shareholders, and that more time would be needed to either continue to sell the $13.65-per-share bid to investors or to have Michael Dell and Silver Lake increase their offer.

In a statement, Dell officials said the meeting was convened and then adjourned "to provide additional time to solicit proxies from Dell stockholders."

Some Dell investors voted via proxy ahead of the meeting, possibly giving Dell executives an indication of how the voting was trending. In addition, votes not filed reportedly are counted as "no" votes, increasing the need for more time for Michael Dell and the board to sell the deal.

Activist investor Carl Icahn, who has been critical of Michael Dell's proposal and has offered a counterbid, said in a statement that the delayed vote "reflects the unhappiness of Dell stockholders with the Michael Dell/Silver Lake offer."

"It's pretty clear that management is not confident they had the votes," Roger Kay, principal analyst with Endpoint Technologies Associates, told eWEEK. "They're constantly polling the shareholders, and if they were confident they had the 42 percent [of investor votes needed to approve the deal], they would have gone ahead with it."

This despite reports that several significant shareholders that previously had indicated opposition to the proposal—including investment firms BlackRock, Vanguard Group and State Street Corp.—reportedly had reversed their positions and planned to vote for the deal.

Now Michael Dell and other Dell directors and executives will have another week to talk with shareholders to shore up enough support to get the deal passed. The CEO and Silver Lake officials also will have more time to consider bumping up the price they're offering, something they've been unwilling to do in the days leading up to the July 18 meeting. The $13.65-per-share price represents about a 25 percent premium for investors.

The delay also gives Icahn and stockholder Southeastern Asset Management more time to try to scuttle the deal and have shareholders look at their counterbid as a legitimate alternative.

Dell Delays Vote on Buyout Bid In Hopes of Rallying Support


Michael Dell has argued that buying the company and taking it private is the best way to accelerate its needed transformation from a PC maker into an enterprise IT solutions and services provider. The company has been battered by the rapid decline in the global PC market, and officials are trying to make it a larger player in enterprise IT by growing its capabilities in higher margin areas such as networking, storage and the cloud. The move echoes what IBM did in the 1990s and what other vendors, including Hewlett-Packard, are doing now.

Michael Dell and other executives could push the company faster outside of the demands from Wall Street and investors. As a public company, they have to be more cognizant of short-term returns for investors and of financial analyst expectations.

However, the proposal has seen significant headwinds since first being announced in February, particularly from larger investors who have said the price undervalues the company and that they will vote against it. Most vocal has been Icahn, who with 8.7 percent of Dell's shares is the largest outside investor in the company.

Icahn and Southeastern have offered a counterbid that includes buying up to 1.1 billion shares for $14 each and giving shareholders the option of buying more shares in the future. It also would keep the company public, and Icahn has said if he gains control of the company, Michael Dell would no longer be CEO.

The board's special committee is recommending that shareholders accept Michael Dell's bid.

Endpoint Technologies' Kay said the shareholders' best option is the Michael Dell-Silver Lake proposal, saying it gives investors a good price for their shares and would free the company to accelerate its transformation efforts. The next-best option would be rejecting the proposal and keeping things as is.

Accepting Icahn's bid would harm the company, he said. Icahn and Southeastern would end up selling off pieces of Dell to gain back the money spent on the company. Icahn's best hope is that Michael Dell sweetens his offer and his buyout plan is approved by shareholders, Kay said.

 

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