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Michael Dell reportedly is under increasing pressure to increase his offer to buy his namesake company or risk having his bid rejected by shareholders later this month.
The $24.4 billion proposal from Michael Dell and private equity firm Silver Lake Partners to buy the PC maker and take it private has been criticized by some major shareholders since it was proposed in February. However, with the July 18 shareholder meeting to vote on the bid about two weeks away, Michael Dell and Silver Lake find themselves facing other challenges.
Notably, investors Carl Icahn and Southeastern Asset Management have gotten the necessary financing for their counteroffer for the company and are pressuring the Dell board of directors’ special committee that is reviewing the company’s options to claim their proposal is superior to Michael Dell’s.
At the same time, the influential Institutional Shareholder Services is expected to issue its report on the Michael Dell-Silver Lake bid next week, and reports are surfacing that the ISS will most likely recommend that shareholders vote against it.
In the face of the Icahn bid and the ISS reports, the special committee, increasingly concerned about the future of Michael Dell’s proposal, over the weekend suggested to the CEO and Silver Lake that they up the $13.65-per-share offer to increase its likelihood of being accepted by shareholders. Both Bloomberg and the New York Times said Michael Dell listened to the committee’s recommendation, but has not yet responded. Citing a “person close to” Silver Lake, the New York Times said that Dell and Silver Lake officials have not discussed raising the price.
Michael Dell has argued that taking the company private is important to its efforts to transform from a PC maker to an enterprise IT solutions and services provider. Dell, like other established tech vendors such as Hewlett-Packard, Intel and Microsoft, is being impacted by the decline in sales of PCs worldwide, as consumers and business users turn their focus of tablets and smartphones.
Dell over the past few years has spent billions of dollars buying dozens of companies to shore up its capabilities in such areas as storage, networking, cloud, security and software. However, Michael Dell said that going private would enable him and other Dell executives to accelerate the transformation efforts outside of the glare of Wall Street attention.
However, Icahn, Southeastern and other investors have said the CEO’s $13.65-per-share offer greatly undervalues the company, and that it greatly benefits Michael Dell and Silver Lake at the expense of investors.
Michael Dell Encouraged to Increase Offer for Company: Reports
Icahn’s proposal includes a stock buyback plan at $14 per share that would keep the company public. He also has said that if he is successful in buying the company, Michael Dell would no longer be CEO.
The special committee has publicly endorsed the Michael Dell-Silver Lake proposal and recently had questioned Icahn’s ability to get the necessary financing for his proposal. However, Icahn has gotten the financial commitments he needs, and in an open letter to investors and the special committee July 1, he argued that his deal is superior to Michael Dell’s. He urged the special committee to agree and said that, at the least, the committee should pull back its recommendation for Michael Dell’s offer.
The special committee said it is reviewing Icahn’s bid and that it “remains committed to achieving the best outcome for all Dell shareholders.”
Michael Dell also reportedly is looking at yet another hurdle. According to the New York Times, Silver Lake officials have become concerned about what they see as a deterioration in the company’s business, and that they would not be upset if the deal fell apart. Dell officials in May reported a 2 percent drop in revenues and a 51 percent decrease in profits. A focus of analysts questions were around aggressive PC pricing, which Dell officials admitted was hurting the bottom line in the short term, but would result in an expanded customer base over time.
In his letter to shareholders, Icahn said he agreed with the strategy, but argued that by endorsing Michael Dell’s proposal to take the company private, the board of directors was ensuring that investors would not be able to share in the future growth.
“We believe that it would be a sad outcome for stockholders and would, to say the least, reflect terribly on all who are involved in this process if, after purchasing shares at what we perceive to be a substantially undervalued price of $13.65 per share, Michael Dell and Silver Lake earned substantial returns on their investment while other stockholders are forced to sell,” he wrote.