Dell Sets Vote on CEO’s Buyout, Dismissing Icahn Offer

Dell Inc. (DELL) urged shareholders to vote for a $24.4 billion buyout by founder Michael Dell and Silver Lake Management LLC at meeting set for July 18, continuing to dismiss a rival proposal by billionaire Carl Icahn as inferior.

After contacting more than 70 potential strategic and financial buyers during a “go-shop” period, Michael Dell’s offer “is the best alternative available -- in a challenging business environment,” Dell said in a filing today. The deal requires approval by a majority of shareholders, excluding Chief Executive Officer Dell, who has a 15.6 percent stake.

Michael Dell and Silver Lake’s push to take the world’s third-largest PC maker private has met with resistance from some of the company’s largest investors. Icahn, who proposed an alternative buyout plan that would maintain Dell as a publicly traded company, is expected to keep pressing shareholders to reject CEO Dell’s bid, according to Jeffrey Fidacaro, an analyst at Monness Crespi Hardt & Co.

“They’ve got some work ahead of them to secure this vote,” Fidacaro said in a telephone interview. “The swing vote could be the mutual funds, index funds and exchange-traded funds who usually go by a third-party opinion.”

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Michael Dell, chairman and chief executive officer of Dell Inc., San Francisco, California, in this Oct. 4, 2011 file photo. Close

Michael Dell, chairman and chief executive officer of Dell Inc., San Francisco,... Read More

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Photographer: Tony Avelar/Bloomberg

Michael Dell, chairman and chief executive officer of Dell Inc., San Francisco, California, in this Oct. 4, 2011 file photo.

The Silver Lake-led group offered $13.65 a share for Round Rock, Texas-based Dell, a 25 percent premium over the company’s share price on Jan. 11, the last trading day before Bloomberg News reported the company was in talks to go private.

Stock Gains

Dell rose less than 1 percent to $13.36 at the close in New York, leaving the stock up 23 percent since Jan. 11.

Icahn and partner Southeastern Asset Management Inc. proposed a competing offer that would pay investors $12 a share in cash or stock while letting them retain stakes in a public company. Icahn, who along with Southeastern owns almost 13 percent of Dell shares, said this month that he would look to replace Michael Dell as CEO if he prevails.

Southeastern, Dell’s largest outside investor, urged other shareholders not to take action on the buyout offer by Dell and Silver Lake.

“Southeastern, along with Icahn Enterprises LP (IEP), believes that substantially greater value can be realized for Dell stockholders than what is reflected in the Dell management-led buyout proposal and will be making a proxy statement available in the near future,” Southeastern said today in an open letter.

‘Substantial Risks’

As Dell’s earnings and sales decline amid a shift in demand to smartphones and tablets, the buyers are seeking to accelerate the company’s plan to sell more products and services for corporate data centers. To win support, Icahn must persuade investors who want to keep an equity stake in Dell that fresh leadership can do a better job playing catch-up in cloud computing while managing greater debt and combating the biggest sales decline in the history of personal computing.

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Dell Inc. signage is displayed outside of the company's headquarters in Austin. Close

Dell Inc. signage is displayed outside of the company's headquarters in Austin.

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Dell Inc. signage is displayed outside of the company's headquarters in Austin.

In a letter to shareholders today, Dell’s board urged investors to support the CEO’s offer over because “it shifts very substantial risks to the buying group” that would be borne by investors under a leveraged recapitalization, the type of transaction proposed by Icahn.

A representative for Icahn didn’t respond to requests for comment.

After accounting for the stakes held by Michael Dell, Icahn and Southeastern, the CEO would need at least 60 percent of the remaining shareholders to approve his buyout plan, according to Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor.

Rival Proposal

“If Icahn can convince a few institutional investors to vote ‘no,’ that will be a tough hurdle,” Gordon said. “That won’t be easy for Icahn because investors who are unhappy with Michael’s offer also are worried about their stock plunging if there is no deal.”

While Dell’s directors haven’t deemed Icahn’s proposal to be a superior offer, a special board committee had sought more details about his proposal. In the event that a special committee of Dell directors concludes that the new proposal isn’t superior, Icahn has said he plans a proxy battle to install his own slate of directors.

Financing for Icahn’s proposal will come from existing cash at the PC maker and about $5.2 billion in new debt.

Private-equity firm Blackstone Group LP (BX) had also researched a possible bid for Dell before withdrawing last month.

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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