THE WALL STREET JOURNAL.
BUSINESS | Updated May 28, 2013,
7:48 p.m. ET
Dell Buyout Battle
Approaches Heated Phase
The battle for control of
Dell is moving into a new, heated phase, as the company and the group
trying to buy it will for the first time be able to press their case
directly to shareholders. Telis Demos reports.
The battle for control of
Dell Inc. is about to move into a new, heated phase, when the company
and the group trying to buy it will for the first time be able to press
their case directly to shareholders.
Already, shareholders have been
peppered with arguments for and against the proposed $24.4 billion sale of
the computer maker, signed in February, to Silver Lake Partners and
Michael Dell, founder and chief executive. But the war has largely been
waged in public filings and the media since the agreement was reached in
Within days, the company and its
would-be buyers are expected to be able to contact investors directly to try
to persuade them to vote for the deal, which will let them sell their
holdings for $13.65 a share. On Tuesday, Dell shares rose two cents to
The deal has been hotly contested
almost since its signing, with a portion of the long-term shareholder base
already aligned against it. In the final vote, the outcome could come down
to how hedge funds and the company's small shareholders end up voting, say
people familiar with such showdowns.
"In a close fight, it really gets
down to dialing for dollars," said Brad Allen, director of Branav
Shareholder Advisory Services Inc., which advises corporate boards on proxy
votes. Mr. Allen isn't working on the Dell matter.
The lobbying process can begin
once the Securities and Exchange Commission blesses a final version of the
deal proxy, which details discussions leading up to the buyout deal and the
financial rationale of the directors who approved it. With that approval,
expected by people familiar with the process this week, Dell can file a
final proxy and set a date for shareholders to vote on whether they will
accept the Silver Lake-Michael Dell offer.
The document will likely set a
July date for the vote, these people said.
Dell's special board committee
that negotiated the deal and the potential buyers won't be the only ones
calling shareholders. Activist investor
Carl Icahn and Southeastern Asset Management Inc., a large, longtime
shareholder of Dell sitting on a loss in its investment, have maintained for
months that the deal undervalues the shares and cuts holders out of future
upside for the company. They are expected to urge shareholders to vote
against the deal with Silver Lake and Mr. Dell. A spokesman for Southeastern
declined to comment. Mr. Icahn didn't return calls seeking comment.
The largest shareholders in a
proxy contest are typically directly contacted by independent board members
or members of a potential buyout group. The parties have hired so-called
proxy solicitor firms to advise on those discussions and handle the many
hedge funds, mutual-fund managers and individuals who make up the numerical
bulk of the shareholder base.
For the smallest shareholders,
proxy solicitors employ people who sift through company records of who owns
the stock and then dial phone numbers they hope are still accurate. Then,
akin to how political campaigns work the phones, they typically work from a
script that will urge shareholders how to vote.
Alex Mandl, the head of the Dell
special committee and the board's lead director, or other special committee
members are likely to take an active role in explaining to major
shareholders how and why the board agreed to accept the Silver Lake-led
buyout, says a person familiar with their plans.
Mr. Dell may also discuss the
buyout deal with shareholders, though his role in soliciting shareholder
approval hasn't been determined yet, said people briefed on shareholder
Mr. Dell and his affiliates
control 15.6% of the company. But Mr. Dell is effectively excluded from the
count, because under the terms of the deal a majority of shareholders beside
him must vote in favor of the deal for it to go through.
About 23% of the shareholders
excluding Mr. Dell have already said they will oppose the deal. That
includes Southeastern and Mr. Icahn, and fund managers
T. Rowe Price Group Inc., Pzena Investment Management LLC, and Yacktman
Asset Management LP.
Another quarter of the non-Mr.
Dell votes, as of the most recent reporting date at the end of March, are
passive funds, according to Ipreo, a capital markets data and advisory firm.
Some of these passive funds say
they explicitly follow the recommendations of the proxy advisory firms Glass
Lewis & Co. or Institutional Shareholder Services, a unit of
MSCI Inc. For example,
Invesco Ltd.'s PowerShares unit, which holds about 1.2% of stock not
owned by Mr. Dell, states that it defers to Glass Lewis's recommendations.
The exchange-traded-fund operator has no voting opinion or committee.
Glass Lewis and ISS will publish
recommendations some time after the proxy process has officially begun,
according to their spokespeople.
Others retain discretion. For
example, Vanguard Group Inc., which owns 4.4% of the non-Mr. Dell shares
according to its most recent filing, has a committee that reviews how its
funds will vote, with the goal of maximizing the investments for
shareholders, according to its proxy guidelines. Invesco and Vanguard
declined to comment further.
"Portfolio managers get quite
heavily involved in proxy votes related to M&A transactions," said Robyn Bew,
director of research at the Washington, D.C.-based National Association of
The remaining voter base, about
half of the non-Mr. Dell shares, includes actively managed mutual funds and
hedge funds. Some of those will be the easiest shareholders to contact and
lobby. Others may not be willing to discuss their votes, or may be locked
into voting for or against the deal based on their trading strategies, such
as merger arbitrage traders, or "arbs," who buy stock at prices just below a
takeover offer, hoping to pocket the difference if the offer goes through.
"You may or may not hear out
their side of the story," said Joseph Ray, president of Gerald L. Ray &
Associates Ltd., a Dallas-based money management firm with $470 million in
assets as of the end of last year. The firm held 62,000 shares of Dell as of
the end of March, according to FactSet. "It depends on the quality of the
call you get, when they get you, and how busy you are." Mr. Ray said he
hadn't yet decided to how to vote.
Some funds may also not make up
their minds until late in the process, meaning that even if the final vote
isn't close, the lobbying will still be fierce. For example, in the case of
the J. Crew Group Inc. takeover by private equity in 2011, though the final
vote approved the deal by a comfortable margin, some of the biggest holders
didn't state how they would vote until just before the deadline.
"As you get toward the last week
and a half, it can really start turning into the fast and furious," said Mr.
Allen of Branav.
Individual shareholders are the
hardest to reach and pin down. Finding these voters will be especially key
for Dell's committee and the buyout group. Shareholders who abstain
essentially count as "no" votes on the takeover. That is because under the
terms of the deal, the buyout group must win a majority of all shareholders,
not just the votes that are cast.
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version of this article appeared May 29, 2013, on page B1 in the U.S.
edition of The Wall Street Journal, with the headline: 'Dialing for Dollars'
in Dell Buyout Vote.
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