Dell’s Leveraged Buyout With Silver Lake Backed by ISS

Aaron Ricadela & Serena Saitto, courtesy Bloomberg imagesCAQ5HFM3

Dell Inc. (DELL) investors should back founder Michael Dell’s $24.4 billion buyout plan, Institutional Shareholder Services Inc. said, in a surprise endorsement of the deal from the biggest shareholder-advisory firm.

Approving Dell’s move to take the company private would shelter shareholders from risks associated with the deteriorating personal-computer business, ISS said today. As recently as last week, ISS was leaning against recommending Dell’s offer, people familiar with the matter said at the time.

Backing from ISS gives ammunition to Michael Dell, who wasn’t planning to sweeten his offer, as he seeks investor support ahead of a shareholder vote on the deal set for July 18. Dell is working to scuttle a challenge by billionaire investor Carl Icahn, who said last week that he obtained $5.2 billion in debt financing to support his third and latest effort to derail the CEO’s proposed buyout.

“The ISS vote is a positive for Dell and Silver Lake,” Jeffrey Fidacaro, an analyst at Monness Crespi Hardt & Co., said in an interview. “They may not feel like they actually need to raise the deal if ISS is agreeing with them.”

Institutional investors look to ISS’s findings for guidance on how to vote their shares, often swaying the outcome. Dell’s special board committee overseeing the buyout negotiations appealed to shareholders for support in a July 5 filing, seeking to blunt the influence of an anticpated rejection by ISS.

Ownership Risks

Among its reasons for supporting the buyout, ISS cited a 25.5 percent premium to Dell’s unaffected share price before the transaction was proposed and the certainty of value provided by an all-cash offer.

“The alternative to accepting the buyout offer is to continue holding equity in a publicly traded Dell, with continued exposure to the risks and rewards of ownership,” ISS said in its report today.

Shares of Round Rock, Texas-based Dell rose 2.3 percent to $13.33 at 9:53 a.m. in New York.

CEO Dell and partner Silver Lake Management LLC proposed repurchasing shares at $13.65 each. Michael Dell is contributing his 16 percent ownership in the company at $13.36 apiece and another $750 million in cash.

Icahn Proposal

Icahn, teamed with Dell shareholder Southeastern Asset Management Inc., has pressed Dell to buy back about 1.1 billion shares at $14 apiece, while leaving the remainder of the company public. Icahn has said Dell has a brighter future ahead and current shareholders should have the chance to participate in a turnaround.

The CEO’s proposal requires approval by a majority of holders excluding Michael Dell. For Icahn’s plan to succeed, he must convince shareholders to reject Dell’s buyout. Then, Icahn needs shareholders to back his efforts to gain control of the board in a proxy context that will count Michael Dell’s vote.

Representatives for Icahn and Southeastern didn’t respond to requests for comment. Dell’s special board committee reiterated its support for the CEO’s plan in a statement today.

Michael Dell has said taking the company private will let him rebuild it as a supplier of data-center equipment and software to curb reliance on the flagging PC market after years of lackluster growth.

Silver Lake and Dell weren’t planning to raise their buyout offer even if ISS recommended against the plan because the proposal they made in February represents a fair and significant premium to where the stock would trade if the deal fell apart, people with knowledge of the situation said July 5.

PC Slump

Dell’s woes have been compounded as the PC market has declined. PC shipments plummeted 14 percent in the first quarter, the steepest decline since market researcher IDC began tracking data in 1994. IDC, which projects that shipments will tumble 7.8 percent this year, is scheduled to release second-quarter PC market results July 10.

Dell, who founded the company in his University of Texas dorm room in 1984 and took it public four years later, rose to become the world’s top PC maker with a manufacturing system that turned out the machines faster and more cheaply than competitors. As the computing market has shifted toward mobile devices like tablets and smartphones, Dell has struggled to remake itself.

Sales in 2012 declined 8 percent to $56.9 billion and net income tumbled 32 percent to $2.37 billion. This year, Dell is expected to earn $1.44 billion, less than half seen in 2005, according to the average of analysts’ estimates compiled by Bloomberg.

CEO Dell told his board that going private would be the best course of action because it would let him boost spending on acquisitions, sales staff and research and development, while investing in PCs and tablets and expanding Dell’s reach in emerging countries, according to a March filing with the U.S. Securities and Exchange Commission.

Thank you, TiA


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This entry was posted on July 8, 2013 by in BIG DEALS, CEO/FOUNDER, M&A's.

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