Dell & Dell - Founder Continues to Insist on a Bargain Price for the Company


If all of us were in a position to be rewarded for making mistakes, killing off investor value, not being terribly contrite about the whole thing, and then found ourselves seeking to acquire whatever we ruined for a bargain price at the expense of investors who put their trust in you to not make mistakes and drive investor value down, the world would still not be a better place. It isn't every day that we are forced to side with Carl Icahn - something we've never done in decades of observing his strategies and actions, but the thought of Michael Dell being able to take Dell back and take it private for a song and dance, while leaving its major investors under water has driven us to do so.

The idea that Dell will take Dell back, try whatever he can to straighten Dell out as a private company and then - when or if he is able to do so - take it back out to the public markets for a victory lap in which only he and his Silver Lake partner will reap the possible rewards is anathema to us. We'd feel different if Dell the CEO hadn't caused a good deal of the train wreck that Dell has become - but he did, and his transgressions should cost him much more than the hefty discount he'll be getting if shareholders vote for the leveraged buyout to go through.

Some shareholders agree with our perspective - and unlike us they have serious money on the line, which we'd have expected to make them far more aggressive than they've been. So thank goodness for Carl Icahn - the typical black knight cast in a white knight role. Go figure! Over the last several weeks the shareholder vote has been postponed twice, and Dell and Silver Lake sort of tossed in what we view as an insulting sweetener to the deal. 

Now Dell and Silver Lake (and we should note we mean primarily Michael Dell) have had to toss in yet another insulting sweetener, this time pushing the buyout price to $13.75 per share and tossing in a 13 cents per share special dividend. We're particularly fond of how the Wall Street Journal put it: "Mr. Dell and the partner heading the deal for Silver Lake, Egon Durban, spent time at their nearby homes in Hawaii working out new terms, said people familiar with the talks." That must have been tough!

It all adds up to well under half a billion dollars - which may sound like a large sum collectively, but shareholder by shareholder literally doesn't amount to much. Meanwhile, the special Dell buyout board has approved another component of the sweetened deal - changing the rules on how votes are counted. Previously any un-voted shares were to be counted as no votes, whereas any non-voted shares will now have no effect on the outcome.

What this means is that for just less than half a billion dollars - which pushes the total deal from $24.4 to roughly $25 billion, Dell and Silver Lake have significantly improved their chances of gaining the approval they seek for the leveraged buyout to take place. The final change to the deal is that Dell also significantly reduced the deal breakup fee (the amount it would cost if the buyout deal fell through) from $450 million to a less generous $180 million.

Icahn of course isn't really a white knight - he's only in the game because there is money to be made, but his involvement has absolutely put more money on the table for those other large yet strangely passive Dell investors. True to form, following the new Dell and Silver Lake offer Icahn filed a lawsuit to prevent Dell from creating yet another new voting date. As it now stands, any shareholders who own the stock as of August 13, 2013, will be eligible to vote their shares during a newly set September 12, 2013, special meeting on the sweetened deal. Meanwhile, the all-important shareholder annual meeting that was supposed to take place in July - and at which shareholders would have voted yes or no to Icahn's own slate of new directors, will now be held on Oct. 17, 2013.

Depending on how the company's annual meeting rules are interpreted, the shareholders either have the right to have the meeting held no later than mid-August, and Icahn is claiming that they must let the shareholders vote on Icahn's proposal and board. Dell and Silver Lake and the Dell buyout group beg to differ. The courts will have to render a judgment on it.

While we wait for that to happen we'll continue to wonder why some of the larger investors are tucking their tails between their legs and running instead of fighting alongside Icahn. In the end they are the ones who are really forcing us to side with Icahn in this. Why they would look to let Dell steal Dell continues to be beyond us.

Edited by Alisen Downey

TechZone360 Senior Editor

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