Dell’s Crafted LBO Pitch Gets Messy as Carl Icahn Circles
Michael Dell’s $24.4 billion deal for Dell Inc. (DELL), carefully crafted over six months, has gotten much more complicated.
Billionaire Carl Icahn has amassed a stake in Dell and is pushing the company to pay a $9 a share special dividend, according to a statement today. Dell’s board, seeking bids higher than last month’s offer from CEO Dell and Silver Lake Management LLC, has also attracted interest from Blackstone Group LP (BX) and rival computer makers Hewlett-Packard Co. (HPQ) and Lenovo Group Ltd. (992), said people familiar with the matter, who asked not to be identified because the discussions are private.
With Dell’s two biggest outside shareholders already opposing the deal, the fresh interest will only increase pressure on Michael Dell to raise his offer and consider alternative financial partners. While Dell’s competitors are unlikely to bid, the people said, the company’s shares have now risen well beyond the deal price to a nine-month high.
“We questioned whether the offer price was enough to get shareholders to agree to this deal,” said Shaw Wu, an analyst at Sterne Agee & Leach Inc. who has a neutral rating on Dell. “It’s not going to be easy. The big question is how badly do you want to get this deal done.”
After unveiling the $13.65-a-share offer last month, CEO Dell and Silver Lake have until March 22 to evaluate other proposals. The computer maker defended its agreement yesterday amid complaints from investors that it had accepted too low a bid.
CEO Dell, who founded the company in his University of Texas dorm room in 1984, approached the board in August with a go-private proposal. He sought a leveraged buyout as Dell was nudged aside in the mobile arena and struggled to vie with competitors such as International Business Machines Corp. (IBM) in computing products and services aimed at businesses.
The deal -- which requires approval from a majority of shareholders excluding Michael Dell -- has been opposed by holders including Southeastern Asset Management Inc. and T. Rowe Price Group Inc.
Dell’s board committee said in a statement that it “negotiated aggressively” to secure the best price and would extend the period for soliciting higher bids if a superior proposal emerged. Evercore Partners Inc. (EVR) is serving as financial adviser.
“The board’s job is to get the best deal for stockholders,” said Erik Gordon, a business and law professor at the Stephen M. Ross School of Business at the University of Michigan in Ann Arbor. “It’s not to keep Michael happy or to defend their original acceptance of Michael’s offer.”
Hewlett-Packard and Lenovo are taking advantage of the so- called go-shop period to get access to information that can only be found in data made available to prospective buyers, people said. Dell is the world’s third-largest personal-computer maker after Hewlett-Packard and Lenovo.
Icahn asked Dell’s board to pledge that it will implement his dividend proposal if shareholders reject the Michael Dell- led offer. Otherwise, Icahn said he will start a proxy fight and seek to replace board members with his own candidates.
Before opting for the special-dividend request, Icahn considered buying a portion of Dell’s shares for about $15 apiece, according to a person familiar with the matter, who asked not to be named because the discussions were private.
Dell’s board is “conducting a robust ‘go-shop’ process to determine if there are third parties interested in proposing alternative transactions that could be superior for Dell’s public shareholders to the going-private transaction -- and we welcome Carl Icahn and all other interested parties to participate in that process,” the PC maker said today in its response.
Dell considered a leveraged recapitalization among other options before settling on the LBO, Dell said yesterday.
Dell, based in Round Rock, Texas, fell less than 1 percent to $14.22 at the close in New York. The stock has advanced 40 percent this year, compared with an 8.3 percent gain in the Standard & Poor’s 500 Index.
Representatives of Dell, Lenovo and Hewlett-Packard and Blackstone declined to comment.
Southeastern, Dell’s largest outside shareholder, with an 8.4 percent stake, this week requested the names and addresses of other shareholders to discuss the deal.
Southeastern has vowed to use all options at its disposal to block the buyout, including a potential proxy fight or litigation. Southeastern estimated in a regulatory filing last month that Dell is worth about $24 a share.
“There are some disgruntled shareholders and they think Michael Dell is kind of bullying them around,” Angelo Zino, an analyst at Standard & Poor’s, said in an interview.
T. Rowe, the second-biggest outside investor in Dell, has also voiced opposition.
“We believe the proposed buyout does not reflect the value of Dell and we do not intend to support the offer as put forward,” T. Rowe Price Chairman Brian Rogers said in an e- mailed statement last month.
Michael Dell and Silver Lake may need to raise the price to about $15 a share to win investor support, Abhey Lamba, an analyst at Mizuho Securities USA Inc., said in an interview.
“There will have to be some negotiations between the shareholders and the current buyout team,” Lamba said. “It would be hard to get a new offer from outside the current team. Whoever comes in would have to have Michael Dell on board.”