THE WALL STREET JOURNAL.
TECHNOLOGY | Updated July 6, 2013,
10:27 a.m. ET
Dell Stock Off on Deal Veto
Michael Dell, in 2012, has
ruled out raising his offer for the firm.
Days before a key report for
Dell Inc. shareholders
on whether to accept a buyout offer, company founder
Michael Dell signaled the offer won't get any better for investors,
sending the stock lower.
Friday's 2.1% drop to $13.03, the
lowest level since Mr. Dell's planned $24.4 billion buyout was first
announced, came ahead of a key weekend for the controversial deal when at
least one influential shareholder advisory firm was expected to issue its
recommendation to shareholders.
The stock slide comes five months
to the day after Mr. Dell and Silver Lake Partners announced their deal to
buy the Round Rock, Texas, company for $13.65 a share. It sets up a
cliffhanger ahead of a key recommendation advising institutional
shareholders on how to vote.
Since the deal was announced in
February, it has been criticized by some of Dell's largest shareholders,
seen a private-equity giant propose a higher offer only to back away, and
has been the subject of a tireless campaign by activist billionaire
Carl Icahn, who wants the deal nixed.
The Dell saga has not taken
a holiday. Michael Dell doesn't plan to raise his $13.65 a share bid
for the computer maker. David Benoit reports on The News Hub.
Despite the tumult, unless Mr.
Dell and Silver Lake make a last-minute move, shareholders will head to
their ballot boxes on July 18 faced with the same offer proposed all that
time ago: Take $13.65 in cash, or say no and share in the fate of the
company and its stock.
The buyout group has faced
pressure to boost the bid, and posturing is always a part of deal
gamesmanship. But shareholders seemed to indicate Friday they didn't expect
any sweetener would emerge to help assure the deal's passage.
Earlier this week, Mr. Dell, who
as founder, chairman and chief executive has far longer and deeper ties to
Dell and who would control it if it became private, had yet to rule out a
price bump the way Silver Lake had, people familiar with the matter said. On
Thursday, Mr. Dell talked with Silver Lake representatives, and there was
mutual agreement they would stand firm on price, people familiar with the
buyout group said.
The buyout group isn't confident
it will earn a positive recommendation from proxy-advisory firm
Institutional Shareholder Services Inc. and believes a slight bump in price
may not be enough to overcome a negative view from ISS, one of the people
In any deal negotiation, it is
common for suitors to say they won't bump an offer until the last minute
even if they are open to doing so. The special committee of Dell's board
wasn't informed any such decision had been made, people familiar with the
matter said on Friday.
The New York Post earlier
reported on Mr. Dell's view.
Meanwhile, Dell's special board
committee on Friday released another presentation arguing in favor of the
buyout and warning of "downside risk" if shareholders veto Mr. Dell's offer.
It said the shares could be worth as little as $5.85 apiece if the year
continues on pace with the first quarter's earnings and only as much as
$8.67 if an earlier earnings estimate proves true. The figures were based on
comparisons to the price-to-earnings ratio accorded rival
The presentation was a response
to further questioning from ISS, signaling the buyout group continues to
deliver feedback to the adviser.
The board presentation, the news
of Mr. Dell's hardened position, and the subsequent stock fall, all can work
in the buyout group's favor ahead of the July 18 shareholder vote.
The lower the shares fall, the
more difficult it may be for some shareholders to vote no and risk a further
drop in the already depressed share price. Buyout proponents also may want
to signal to ISS the risk of a stock-price drop should the deal fall apart.
Many big investment firms make
their own decisions on how to vote on corporate deals, and are unlikely to
be swayed by proxy advisers. Other investment funds rely on the
recommendations of the advisers. Corporate ballots sometimes go against the
recommendations of proxy firms. In 2011, for example, ISS recommended
shareholders reject a sale of J. Crew Group Inc. to a group that included
the company's CEO. Shareholders overwhelmingly voted for the deal.
Friday's stock decline suggests
investors don't have faith that either Mr. Dell's deal or Mr. Icahn's
competing proposal would now succeed. Mr. Icahn's proposal calls for a
tender offer of $14 a share for 1.1 billion shares, leaving a portion of the
company still trading on the public markets.
The company presentation on
Friday criticized a set of estimates that Mr. Icahn uses as "aspirational,"
and said his valuation "implies unrealistic multiples."
Mr. Icahn said on Friday he
believed the buyout group is disingenuous about the health of Dell, and
about its own intentions. "I'm tired of their propaganda. If they're going
to go away, let them go away," Mr. Icahn said in an interview. He said he
welcomes a defeat of the buyout and is committed to pursuing his proposed
recapitalization of Dell, borrowing to pay shareholders, if the buyout is
If passed, the deal would be one
of the largest private-equity buyout since the financial crisis. However,
the deal has faced opposition since it was first signed, with some
shareholders arguing Mr. Dell was borrowing and using the company's cash to
keep the company for himself rather than let shareholders participate in the
upside he envisions under private ownership.
Mr. Dell has maintained the
company's transformation needs to happen outside of the public eye, and that
a $13.65 cash offer enables shareholders to avoid the business risks facing
Write to David
email@example.com and Shira Ovide at
A version of this article
appeared July 5, 2013, on page B1 in the U.S. edition of The Wall Street
Journal, with the headline: Dell Stock Off on Deal Veto Worries.
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