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Michael Dell is looking to retain top executives during his controversial bid to buy out his namesake company and take it private, while at the same time rallying employees around the effort.
Dell’s board of directors on April 23 approved $91.1 million for a retention program aimed at particular executives in hopes of persuading them to stay during the leveraged buyout process. The money is aimed at officials who are “members of the executive leadership team, vice presidents and executive directors of the company who are critical to the company’s future success,” according to a report in BusinessWeek, quoting a Dell regulatory filing with the Securities and Exchange Commission.
Those eligible for bonuses will be able to receive up to 100 percent of their base salary, according to the report. CEO Michael Dell is not among those eligible for the retention bonuses.
At the same time, Michael Dell, in a letter to employees, reiterated that by taking the company private, he and other executives will be able to more quickly transform Dell from a commodity PC maker into an enterprise IT solutions and services provider. The strategy is a good one and includes keeping and investing in the PC business, Dell said in the letter, which was included in another SEC filing April 23.
The filings come less than a week after more changes in what has been an extremely fluid situation since Michael Dell announced his $24.4 billion buyout bid in February. Officials with investment firm Blackstone Group, which last month had made a competing bid for Dell, rescinded the bid last week after analyst firms IDC and Gartner released reports showing a global PC market that was continuing to quickly contract.
Analysts from both firms indicated that PC sales in the first quarter continued to slow, increasing pressure on tech vendors like Dell, Hewlett-Packard and Intel, which derive a lot of their revenues from their PC businesses. PC sales are being hit by the growing popularity of such mobile devices as smartphones and tablets.
According to a Bloomberg report, Blackstone executives—including former Dell official Dave Johnson—were concerned about a deteriorating PC market, that Dell was years away from competing in the enterprise solutions space and that Dell executives crucial to the effort may leave the company.
Blackstone’s departure April 18, along with a decision by activist investor Carl Icahn—in an agreement with Dell—not to raise his stake in the company above 10 percent of outstanding shares or partner with other shareholders to give him more than 15 percent, gives Michael Dell and Silver Lake an easier path. Both Blackstone and Icahn had made bids that were higher than the one offered by Michael Dell.
However, Icahn could still wage a proxy battle, and some larger shareholders, including Southeastern Asset Management and T. Rowe Price, have balked at the $13.65-per-share offer and have vowed to vote against Michael Dell’s bid.
At the same time, some other investors—notably Oakmark Funds—sold their shares in Dell after Blackstone’s withdrawal over Dell’s financial situation.
Still, in his letter to employees, Michael Dell said he is confident in his company’s future and that taking the company private is going to be a key step in building to that future.
Dell Looks to Keep Execs, Bolster Workers During Buyout Process
“We will have private investors that share our strategic vision and are willing to see it through, even if it means making some tough trade-offs today to position us for success down the road,” Dell said. “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. 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.”
He noted that Dell has spent $10 billion over the past several years acquiring companies to build up its capabilities in such areas as networking, storage, software and services. The key differentiators for the company are that, unlike competitors, it doesn’t have legacy systems or technologies it needs to protect—freeing it up to pursue new technologies and solutions, he said. In addition, Dell is keeping a focus on what the CEO said is midmarket that is vastly underserved by other vendors.
“The world is headed in our direction toward modern, open, scalable architectures, and there are no plans to alter the strategy,” Michael Dell wrote.
At the same time, despite the struggling global market, he reiterated that PCs are still a key part of Dell’s business plan, noting the company’s market share growth in PC shipments in the first quarter.
“PCs are an important business for us and an important tool for our customers,” Michael Dell wrote. “There is still opportunity in PCs. The global PC installed base is roughly a billion-and-a-half, and millions of people in emerging markets continue to come online every week. Overwhelmingly, PCs are still how business gets done around the world. We are fine tuning and investing in our business to innovate and compete more aggressively where growth is happening.”