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Dell’s board of directors is backing CEO Michael Dell’s buyout bid and has set a shareholder vote on the $24.4 billion proposal for July 18.
After almost four months of possible competing bids and shareholder criticism of the deal, the directors sent a letter to investors saying that the offer from Michael Dell and private equity firm Silver Lake Partners represents the best option for the embattled PC maker.
This comes despite the latest efforts by activist shareholder Carl Icahn to cobble together a counteroffer and some lawsuits filed by disgruntled investors who claim the $13.65-per-share offer greatly undervalues the company and benefits the founder and CEO at the expense of shareholders.
In the May 31 letter sent to shareholders and filed with the Securities and Exchange Commission (SEC), the special committee created by Dell’s board to oversee the deal said Michael Dell’s proposal offers shareholders a “material premium over pre-announcement trading prices” and shifts the risks involved in transforming the company from a PC maker to an enterprise IT solutions provider “in a challenging business environment” onto the buyers.
The $13.65-per-share price represents a 37 percent premium over Dell’s 90-day average price and a 25 percent premium over the price on the last day of trading before media leaks about the deal started coming out, the board’s special committee said.
“We are fully convinced that this significant, immediate and certain premium is superior to owning Dell as a stand-alone entity today—with or without a leveraged recapitalization—as well as to the other strategic and financial alternatives potentially available,” the committee wrote. “Having conducted a thorough and probing review of Dell’s challenges and opportunities, we believe that the risks and uncertainty of a stand-alone public company are high and that the transaction we have negotiated offers superior value for Dell stockholders.”
Michael Dell has argued that buying the company and taking it private represents the best option for transforming the world’s third-largest PC maker into an enterprise IT solutions and services vendor. With a private company, Dell executives would be able to accelerate the strategy without the glare of Wall Street or the worry about hitting quarterly financial numbers.
“If we were to remain a public company, I believe it would be more difficult to move fast and aggressively because of the short-term focus of the market,” Michael Dell said in a letter to employees in April. “The fact is, we can’t afford not to continue investing for the future when you look at the opportunity ahead for us and our customers.”
Since starting the transformation several years ago, Dell has spent billions of dollars acquiring companies in hopes of building up its capabilities in such areas as storage, networking, software and services and reducing its dependence on a contracting global PC market. Michael Dell has said acquisitions will continue to be an important part of the company’s plans, as will PCs.
The proposal to buy the company and take it private hit resistance soon after Michael Dell announced it Feb. 5. Almost immediately, large shareholders like Southeastern Asset Management and T. Rowe Price said the deal was bad for investors and promised to vote against it. Shareholder lawsuits against the deal soon followed.
There also were competing bids by firms such as the Blackstone Group—which eventually rescinded its offer—and, more recently, Icahn and Southeastern. In a letter to the board May 9, Icahn and Southeastern officials outlined a proposal that would allow investors to sell their shares or keep Dell stock, and the company would continue without Michael Dell at the helm. The bidders called the Michael Dell-led proposal a “giveaway” and criticized the board for accepting the deal.
“The shareholders in this case are literally getting screwed,” Icahn said May 10 in an interview on CNBC. “You can camouflage it with numbers or whatever, but $13.65 is a giveaway. … This is what we call the great giveaway.”
Dell board members asked Icahn and Southeastern for more information before they could evaluate the bid, and now are moving ahead with putting Michael Dell’s proposal before shareholders for a vote. In their letter to shareholders, the directors said that during the “go shop” period after Michael Dell’s proposal was made public—during which time other companies could put bids in for Dell—“21 strategic and 52 financial buyers were contacted and a number of parties conducted diligence, although no superior offer has materialized.”
