THE WALL STREET JOURNAL.
TECHNOLOGY | Updated August 2,
2013, 7:34 p.m. ET
Dell Reaches New Deal With
Agreement With Michael Dell,
Silver Lake Would Amend Voting Rules, Add Special Dividend
DAVID BENOIT, KIRSTEN GRIND and
Relenting to pressure from all
Dell agreed Friday to personally pay more to take ownership of the
company that bears his name.
Alexander F. Yuan/AP Photo
Michael Dell, Chairman and CEO of
Mr. Dell and his partner on the
deal, private-equity firm Silver Lake, are now offering a 13-cent special
dividend to shareholders, plus a raised price of $13.75 for each share. The
increases add $350 million to what had been a $24.4 billion deal for Dell
In exchange, the special Dell
board committee negotiating the deal agreed to adjust the shareholder voting
rules in ways that advocates and critics of the takeover alike say should
help it get across the finish line.
Mr. Dell himself is funding the
special dividend, according to people familiar with the deal.
The buyout, controversial with
Dell shareholders since it was announced in early February, still isn't
Carl Icahn, its most-vocal detractor, on Thursday filed suit in Delaware
Court of Chancery seeking to bar any change in voting rules. A hearing on
that case is scheduled for Monday, Aug. 12, according to people involved in
On Friday, Mr. Icahn said "an
increase of a mere 13 cents is an insult to shareholders" and he said the
special committee "is improperly putting its thumb on the scales in favor of
Mr. Dell's offer."
It is unclear if shareholders
will be satisfied with and pass the improved offer. Mr. Icahn, for one, has
argued the voting changes could in fact generate additional "no" votes.
Franklin Mutual Advisers, one of
Dell's large institutional investors, plans to vote in favor of the new Dell
deal, Peter Langerman, Franklin's chief executive said Friday. "We're not
jumping up and down," said Mr. Langerman, who said Franklin earlier voted
against the buyout. "But if the vote were today or tomorrow we would say
Mr. Langerman and his team met
with Mr. Dell last month and aired their concerns about the deal and its
price, he said. "We were quite vocal in terms of dissatisfaction with the
process and the price," Mr. Langerman said. Franklin is a unit of
Franklin Resources Inc.
Donald Yacktman, president of
Yacktman Asset Management, said Friday he still opposes the Dell buyout.
"From the word go, we've made a statement about where we've stood and we're
not going to change that," said Mr. Yacktman, whose firm is also a large
The fabric of the new deal shows
the determination of Mr. Dell, the company's founder, chairman and chief
executive, to see it through. Last week the buyout group had offer to raise
its $13.65 bid to $13.75, saying it was their "best and final" offer. In his
own letter to shareholders last week Mr. Dell said, "I am at peace either
way and I will honor your decision."
Mr. Dell and the partner heading
the deal for Silver Lake, Egon Durban, spent time at their nearby homes in
Hawaii working out new terms, said people familiar with the talks.
The new deal also calls for a
third-quarter dividend of eight cents a share that might not have been paid
had the buyout closed according to an earlier schedule.
The buyout group proposed the
eight-cent payout on Wednesday, according to a person familiar with the
matter. The Dell board said the quarterly dividend wasn't enough, and by
Wednesday evening they'd agreed on adding the 13-cent special dividend,
people familiar with the matter said. The details were hammered out late
into Thursday night.
All in, the offer-price increase
and the dividends amount to a value of $13.96 a share for holders not
affiliated with Mr. Dell, a 2.3% increase from the original offer. Dell
shares rose 5.6% to $13.68 in Friday trading, the highest since April and a
sign investors think the deal will get done.
Dell shareholders will get a
chance to vote on the new proposal on Sept. 12. Friday's deal also includes
a new "record date," of Aug. 13, the date that determines which Dell
stockholders can cast votes on the deal.
The voting-rule change means only
shares that are actually voted count, altering an earlier clause that had
abstentions counting as "no" votes. That clause proved problematic when
turnout for the vote wasn't as high as the buyout group and special
committee had hoped. When they didn't have the confidence they had the votes
to get the deal passed, the special committee delayed the vote twice.
Alex Mandl, chairman of the
special committee, said Friday the new voting standard is "in the best
interests of Dell shareholders" and "has enabled us to secure substantial
additional value." He said the voting change was warranted because when the
sides struck a deal there was only a choice between "a going-private
transaction and a continuation of the status quo."
Now, he says, the "nature" of
shareholders' choice has changed because an alternative has emerged, a
reference to Mr. Icahn's competing plan for Dell to borrow and pay out money
Southeastern Asset Management
Inc., aligned with Mr. Icahn in the fight, responded it was "amazed" at Mr.
Mandl's justification, saying he was using their opposition to justify
lowering the voting requirement for Mr. Dell and Silver Lake.
A new record date could also help
the buyout group by attracting short-term shareholders, known as merger
arbitragers, who buy shares with the hopes of securing gains when deals get
Dell, founded by Mr. Dell nearly
30 years ago, has struggled to keep pace with the latest technology trends.
Mr. Dell has envisioned refocusing the company on serving corporate clients
rather than selling consumer computers. Shareholders who have protested the
deal have had many of the same goals but felt the original $13.65-a-share
price undervalued the company and that the buyout unfairly cut them out of
potential upside in any Dell revival.
The resistance to the original
deal proved more than Mr. Dell could overcome, even as certain key
developments went his way. In April, industry-research firm IDC issued a
surprisingly bleak report on global PC shipments, potentially lending
credence to the board's inclination to sell the company.
Later that month, private-equity
Blackstone Group LP, which had considered an offer greater than $14.25 a
share, backed away after getting spooked at Dell's business prospects during
due-diligence research. That move, and the lack of any other bidders for the
whole company, gave the committee and buyout group leverage to say no higher
offer was in sight. Then in July three shareholder-advisory firms urged
investors to take the $13.65-a-share offer.
Still, all of these favorable
factors weren't enough to overcome the assault by Southeastern and Mr.
Icahn. The investing pair have said if the buyout vote failed, they would
put up their own slate of directors at Dell's annual meeting to try to oust
the board, including Mr. Dell. They have proposed a plan in which the
company would borrow money and pay shareholders $14 a share and a warrant
for as many as 1.1 billion shares out of about 1.76 billion shares
They have urged Dell's board to
hold the buyout vote at the same time as the annual meeting, to give
shareholders an option to choose their proposal, Mr. Dell's, or neither.
On Friday morning, the Dell board
made clear it had no such intentions, setting the annual meeting for Oct.
—Shira Ovide, Peg Brickley and Joann S. Lublin
contributed to this article.
Write to David
firstname.lastname@example.org, Shira Ovide at
email@example.com and Kirsten Grind at
A version of this article
appeared August 3, 2013, on page B1 in the U.S. edition of The Wall Street
Journal, with the headline: Michael Dell Sweetens Offer.
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