Jul 8, 2013
ISS Blesses Dell Buyout: Highlights From the
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Shareholder Services is
recommending shareholders support the buyout of
Dell Inc., an opinion that may surprise even those hoping for it and
could spell the end of five months of deal drama.
Here are some
highlights from the ISS report.
paragraph – “After evaluating the risk of accepting the offer … ISS
recommends clients vote FOR this transaction, which offers a 25.5% premium
to the unaffected share price, provides certainty of value, and transfers
the risk of the deteriorating PC business and the company’s on-going
business transformation to the buyout group.”
‘crucial for success’ for transformation – “There is no question
that making major changes in a public company setting adds complexity to an
already difficult task. Dell faces intense competition – lower cost products
from Asia, threats from new entrants and the Cloud – and the technology Dell
aims to provide is ever-changing. In announcing the deal, however, the
buyout group indicated it would not change the transformational strategy
itself. In explaining why the go-private is in the company’s best interest,
the CEO has argued that the transition is both easier and quicker as a
private company, eliminating the need to explain increased spending to stock
analysts, or meet investor expectations which might have the effect of
slowing progress on the transformation. Given that a business transformation
in this industry, which is continuing to transform itself, will likely have
a moving target, speed of transformation is especially crucial for success.”
New Dell is on track – “The
board, too, argues that the market has ignored Dell’s progress to this
point, highlighting that as non-PC revenue has grown, overall trading
multiples have contracted. Shareholders must consider, however, that despite
recent trading levels – attributed to the PC business declining faster than
anticipated – Dell’s acquisitions are exceeding management’s expectations.
Despite poor PC fundamentals, in other words, ‘New Dell’ is still on track.”
risky horse: Regarding Carl Icahn’s competing proposal to buy up to
1.1 billion shares of the total 1.7 billion shares for $14 each and replace
the Dell board, ISS raised questions about whether he would win a proxy
fight, even if shareholders reject the $13.65 deal. “Shareholders who prefer
to cash out at $14, rather than $13.65, may be completely willing to swap
out the entire board, if that’s what it takes to cash out. But they may not
be able to do it alone, if a substantial number of other shareholders who
don’t want to cash out are also reluctant to change horses
midstream—particularly when the increase in financial leverage on the
recapitalized company they will continue to own effectively means the stream
just got a little stronger and a little deeper.”
What ISS was deciding on:
“Because shareholders cannot immediately accept $14 in cash even if they
vote down the proposed buyout, however – they must also vote to replace the
entire board and the CEO through a proxy contest at a subsequent annual
meeting, and even then may end up with cash and equity if the envisioned
self-tender is oversubscribed – the choice remains whether $13.65 in cash
now is a better alternative than continuing to hold equity in a
“In the end, shareholders must weigh the bullish enthusiasm of Icahn, SAM,
and several other shareholders who have publicly declared the offer price
too low against the apparently increasing headwinds in Dell’s transformation
process, and the signals transmitted by the lower trading prices and analyst
price targets immediately prior to any takeover speculation. Given the 25.5%
premium to the unaffected share price, the certainty of value provided by
the all-cash consideration, and the fact that the transaction would transfer
to the buyout group the risk of the deteriorating PC business and the
company’s on-going business transformation, a vote FOR the transaction is
THE WALL STREET JOURNAL.
TECHNOLOGY | July 8, 2013, 6:54
ISS Recommends Dell Buyout
Proxy Adviser: Taking Dell
Private Would Make Transformation Faster, Likelier to Succeed
A leading shareholder-advisory
Dell Inc. stockholders should vote for a $24.4 billion effort to take
the computer maker private, a decision that may seal the controversial
buyout by founder
The recommendation from
Institutional Shareholder Services Inc., which advises investors how to vote
on corporate issues, improves the odds of the buyout winning approval from
Dell stockholders in a vote slated for July 18.
The ISS recommendation may take
the wind out of critics' arguments that the deal is unfair, and it eases the
pressure on Mr. Dell to bankroll a higher price to win over skeptics.
ISS said the transaction "offers
a 25.5% premium to the unaffected share price, provides certainty of value,
and transfers the risk of the deteriorating PC business and the company's
on-going business transformation to the buyout group."
In making the recommendation, ISS
agreed with the buyout group's arguments that taking Dell private would make
the transformation faster, and therefore more likely to succeed.
"A business transformation in
this industry, which is continuing to transform itself, will likely have a
moving target, speed of transformation is especially crucial for success,"
the report said.
The proxy advisory firm also
strongly criticized activist investor
Carl Icahn's proposal, which envisioned borrowing money to pay out
shareholders rather than use such funds for a buyout. Its report said "the
undeniable risk of the leveraged recapitalization proposal, however, is that
shareholders cannot actually elect it in lieu of the proposed go-private
Mr. Icahn couldn't immediately be
reached for comment.
The report comes after investors
on Friday sent shares of Dell down to $13.03, their lowest since the buyout
offer was announced in February and a price that could help make the $13.65
offer look appealing.
Shares were up 19 cents, or 1.5%,
to $13.22 in premarket trading Monday.
People familiar with the buyout
group's thinking have considered the ISS report pivotal in potentially
swaying a close vote one way or the other.
The report marks the latest
development in one of the most dramatic deal situations of the year, one
that has seen influential Wall Street investors from Mr. Icahn to
Blackstone Group LP sizing up the worth of the Round Rock, Texas
In a somewhat ironic twist, both
the special committee of Dell's board that negotiated the deal and Mr. Dell
himself have been arguing against the company's prospects as a public entity
in an effort to convince shareholders the pending offer is worth taking.
Mr. Dell, the company's founder,
chairman and chief executive, and private-equity firm Silver Lake Partners
struck an agreement in February to buy Dell's publicly held shares for
The special board committee
negotiating the deal for Dell said in a statement Monday that it was pleased
with ISS's recommendation.
ISS did raise concerns about the
sales process that the special committee ran, saying it "may have left
something to be desired." The firm questioned why only a limited number of
private-equity firms were contacted in the early stages, before a deal was
struck with Silver Lake. It added that the later go-shop period inviting
other bidders shouldn't be counted on as a "panacea" to finding the best
The special committee has often
defended the process as robust. It decided to contact a limited number of
bidders early on because it and its advisers believed they were the most
likely bidders and to reduce the risk of a leak, according to a filing.
The $13.65-a-share offer is about
a 25% premium to where the stock was trading before news broke that Mr. Dell
was talking with private-equity investors about a buyout.
Mr. Icahn and some other Dell
stockholders early on bashed the deal, saying Mr. Dell is unfairly taking
advantage of a low point in his company's fortunes to buy his company too
cheaply and cutting public shareholders out of any turnaround. Mr. Dell has
said his company is ailing and needs to craft a turnaround free from the
scrutiny of public shareholders.
Many big investment firms make
their own decisions on how to vote on corporate deals, and are unlikely to
be swayed by proxy advisers. Some investment funds do rely heavily on the
recommendations of the advisers.
Still, corporate ballots
sometimes go against the recommendations of proxy firms. In 2011, 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.
ISS urged investors to approve a 2010 takeover of energy company
Dynegy Inc., and shareholders voted the deal down. This year,
shareholders overwhelmingly rejected a proposal to strip
J.P. Morgan Chase & Co. CEO
James Dimon of his chairman role, even though ISS had endorsed the
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