Here’s a Look at Who Might Not Want Dell to Go Private

Micheal Dell

The vote to determine whether shareholders should accept the offer made by company founder and Chief Executive Officer Michael Dell to take Dell (NASDAQ:DELL) private for $24.4 billion is now just one month away. Set for July 18, it could be a close one if activist investor Carl Icahn of Icahn Enterprises (NASDAQ:IEP), who has a plan for the struggling personal computer manufacturer of his own, does not walk away from the proxy fight he started.

After Mr. Dell submitted his offer to the board, as a matter of propriety, Dell’s board instituted a 45-day go-shop period to insure the best possible offer was sourced, and several offers trickled in before that window closed in late March, But only the proposal submitted by Icahn and Southeastern Asset Management, Dell’s largest outside investor, has stuck. Their official $21 billion offer, made at the beginning of last month, challenges the $13.65-per-share bid made by Mr. Dell and the private-equity firm Silver Lake by allowing Dell shareholders to keep existing stock with the option of receiving either a distribution of $12 a share in cash or in stock valued at $1.65. They argued that Mr. Dell’s offer values his company far too low.

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Still, two major proxy firms, Institutional Shareholder Services and Glass Lewis, have yet to give their opinion on the proposal made by Mr. Dell, and their recommendations will carry a lot of weight with certain institutional shareholders. Either firm, especially ISS, could sway shareholders to vote against the buyout. But the meeting between representatives for Dell and Silver Lake and the proxy firms has not take place.

Their recommendations matter because of the way the proxy vote is structured. The terms of the buyout process established by the special committee of Dell’s board of directors dictate that neither Mr. Dell, nor any of his affiliates that control a combined 15 percent and change of the outstanding shares, can cast a vote. This rule means that a majority of slightly more than 42 percent have to vote in favor of his offer for it to win.

Both Southeastern and Icahn will vote against Mr. Dell’s proposal, and together, they control a combined 12.53 percent of the company’s shares. Fund manager T. Rowe Price, which held 4.09 percent of Dell shares as of March 31, and Pzena Investment Management and Yacktman Asset Management, which control a combined 1.58 percent of shares, have all previously spoken out against the deal.

One critical block of Dell’s shares are part of investment funds that are passively managed, including some index funds and exchange trading funds. According to data from Thomson Reuters, more than 16 percent of Dell shares are in the hands of index funds, and in some cases, these funds vote in accordance with the recommendations of the proxy firms. A source told AllThingsD that as much as 10 percent of Dell’s shares are controlled by firms that have so-called “auto pilot” proxy policies, while an additional five percent to 10 percent will be heavily influenced the by proxy firms’ opinions.

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Firms that keep their own counsel on proxy votes include Vanguard Group and the iShares fund controlled by the investment firm BlackRock (NYSE:BLK). These are two of the largest shareholders in this group; Vanguard owns 3.7 percent of Dell shares and BlackRock’s fund has a 3 percent holding.

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