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Michael Dell agreed to sweeten his proposal to buy Dell Inc. to as much as $24.9 billion with a special dividend, winning concessions from the board committee that boost his odds of winning shareholder support for the deal.
Dell and partner Silver Lake Management LLC are offering a dividend of 13 cents a share on top of an already-increased $13.75-a-share bid for the computer maker, according to a statement today from the board committee. In exchange, the investors holding the stock as of Aug. 13 will be eligible to vote on the deal, and abstentions will no longer be counted as no ballots. The shareholder vote will be held Sept. 12.
The shares jumped the most since February to as high as $13.66, signaling investors will back Michael Dell’s efforts after months of sparring with activists such as Carl Icahn, who pressed for a higher price or an alternative proposal. The shareholder vote had already been delayed twice after Michael Dell failed to muster enough support for the deal.
“At this point, the momentum has clearly shifted toward Michael Dell,” Angelo Zino, an analyst at S&P Capital IQ in New York, said in an interview. “Just 24 hours ago it looked really bleak for him.”
Dell rose 5.3 percent to $13.64 at 11:40 a.m. in New York.
Founder Dell is personally financing the extra dividend, or $230 million, by taking a further discount on his 15.6 percent stake, according to a person close to the situation. Dell who rolled his stake into the original deal at $13.36 a share, is now doing so at about $12.52, said the person, who asked not to be named because the matter is private.
Michael Dell and Egon Durban, the Silver Lake partner leading negotiations for the private-equity fund, hashed out the new deal with the board while they were in Hawaii, said the same person. They reached an agreement on July 31 and hammered the final details yesterday, the person said.
The offer replaces a bid of $13.65 a share for the personal-computer maker, which shareholders were scheduled to vote on today at Dell’s headquarters in Round Rock, Texas. With the new proposal, shareholders also would be guaranteed to receive an 8-cent dividend next quarter, in line with previous periods.
The new offer adds as much as $470 million to the original bid, including the special dividend and the third-quarter payout, the board committee said. The total includes the $120 million value of the quarterly dividend.
By taking the PC maker he started in 1984 private, founder Dell is seeking to transform it into a bigger provider of hardware, software and services for corporate-data centers, after years of ebbing sales and profit as consumers shift away from PCs toward computing on smartphones and tablets.
Icahn and fellow Dell investor Southeastern Asset Management Inc. have made a series of alternative proposals to derail a takeover by Chief Executive Officer Dell, including a $14-a-share buyback. Yesterday, Icahn filed suit to block Dell from changing procedures for voting on the deal, accusing the founder of trying to “ram through” the buyout.
They also asked the board to hold the annual meeting — when shareholders would vote on his proposal if the LBO failed – – at the same time as the vote on the LBO. The board, however, scheduled Dell’s annual meeting for Oct. 17.
At $13.96 a share, including the two dividends, the CEO’s buyout might ultimately pass muster with Icahn, according to Jeff Fidacaro, an analyst at Monness Crespi Hardt & Co.
“He understands the alternative is that the deal does not get done, and there could be significant downside with the stock closer to $10 a share,” Fidacaro said in an interview.
Icahn said on Twitter today that “the war itself is far from over.” He didn’t respond to a request for comment, nor did a representative for Southeastern.
The sweetened bid won over Matt Halbower, founder of Pentwater Capital Management LP, a Chicago-based investment firm with $2.9 billion in assets under management. While he was previously opposed to the deal, he’s now voting his 29 million shares in favor of the transaction.
“It is a fair result,” said Halbower. “I am confident a majority of the Dell shareholders will agree and the vote will be successful.”
Before today, Dell shares had been trading below the original $13.65 offer price since April, signaling investors weren’t confident about the buyout group’s ability to get the deal done, nor in alternatives proposed by Icahn and Southeastern. Since announcing the buyout Feb. 5, the company’s special committee has argued that the company’s prospects of a turnaround are better outside of the public lens.
Once the world’s top supplier of PCs, Dell has spent billions of dollars on acquisitions over the past five years to add enterprise computing hardware, software and services, though the deals have yielded little return for investors. Meanwhile, the company has ceded the fast-growing mobile-computing market to Apple Inc. and devices running Google Inc.’s Android operating system.
ROBIN YOUNG, HOST:
From NPR and WBUR Boston, I'm Robin Young. It's HERE AND NOW.
And while other high-tech companies have been going public - Facebook comes to mind - Dell computers might be going in the opposite direction. CEO Michael Dell has been trying for months to buy back the company he founded. And today, he upped his offer to about 25 billion dollars.
Marty Schenker of Bloomberg News joins us. And, Marty, so to be clear, he wants to buy the company back from shareholders, and they have to agree on his price.
MARTY SCHENKER: That's right. They have to agree, and they have to have a vote in September to finalize it. And then there's Carl Icahn, a big investor in the background, who's not happy. So...
SCHENKER: He thinks Dell is worth a lot more than Michael Dell is offering, and his group.
YOUNG: Well, why is Michael Dell making the offer? Because we see many company founders, at this point, buying as many houses as possible in the Hamptons and retiring. I mean, why does he want it back?
SCHENKER: Well, it bears his name. And Michael Dell was a true innovator, entrepreneur, who basically took on IBM and the PC business in the '80s and '90s and transformed it. Through his innovation and direct marketing to consumers, he was able to drive the price of the PC - home PC down from about $2,000 to $700. So he was a - he's a legendary figure in the computing business, and the company has his name.
YOUNG: Well - yeah. And he did drive prices down, you could, you know, create your own computer online when you bought it. But is he considered...
YOUNG: But is he considered a visionary like those who are, you know, other computer companies coming up with smartphones and such? Is he considered - does he - is it seen that he has the chops to go in that direction?
SCHENKER: Well, that is the fundamental question. And investors have been, over the last decade, wondering whether he was just a one-hit wonder. He did do a tremendous job in bringing the home PC to a vast number of people. But while all the other innovators in the industry were going to smartphones, tablets and the PC is really a diminishing business, he stood still.
SCHENKER: And in the last couple of years, he's been trying to catch up, but he has public shareholders, and they want to see the price go up.
YOUNG: And again, you say, it's his name, it's his, you know, the company in his name. One reason why he might want to but it. Why else would he want to buy it?
SCHENKER: Well, if you take a company private - and I know this because I work at Bloomberg and we're a private company - you're able to do things that maybe public shareholders wouldn't allow you to do. You can spend, you can develop - spend a lot of money on R and D, you can make acquisitions, and you don't have to answer questions every quarter, why is your share price not going up.
YOUNG: Yeah. So what do you see happening here? First of all, you mentioned Carl Icahn, the billionaire investor. He's called previous offers too low. He's filed a lawsuit over parts of this. We don't want to wander into those weeds but...
YOUNG: ...do you think Michael Dell's bid is going to approved in this special shareholders meeting in September?
SCHENKER: Well, I think he holds a much better chance now that he'd reached this deal with the special committee. And so September will be the turning point on whether this deal gets done. But now that he's raised his offer and declared this special dividend, it's more likely than it was yesterday.
YOUNG: And this means a lot, obviously, for Michael Dell and for the shareholders. What does it mean for consumers?
SCHENKER: I don't know that really means a hell of a lot to the consumers...
SCHENKER: ...because what - they will continue to make PCs. They will continue to try to drive the price down but - because they need that cash flow to support their debt. But they're not great innovators, and you may not see a lot out of them.
YOUNG: OK, great. So who cares? No, obviously, the business world will...
SCHENKER: Well, it's great theater if nothing else.
YOUNG: Yes, there's that. Michael Schenker of Bloomberg News. Thanks so much.
SCHENKER: You're welcome.
YOUNG: We'll take a break, be right back. HERE AND NOW. Transcript provided by NPR, Copyright NPR.