No More Icahn, No More Vote Worries for Michael Dell

Dell

Carl Icahn’s months-long attempt to convince shareholders to vote against company founder and Chief Executive Officer Michael Dell’s $24.4 billion leveraged buyout offer for Dell (NASDAQ:DELL), and then his sweetened $24.9 billion privatization bid, is fading into a nightmare. On Monday, Icahn authored an open letter to shareholders in which he announced that he and partner Southeastern Asset Management “determined that it would be almost impossible to win the battle on September 12,” the date of the much-delayed shareholder vote. “We have therefore come to the conclusion that we will not pursue additional efforts to defeat the Michael Dell/Silver Lake proposal, although we still oppose it.”

Opposition from his firm, Icahn Enterprises (NASDAQ:IEP), hindered the takeover’s progress since the investor made his own proposal; the vote on the privatization bid was postponed three times for what Mr. Dell has called lack of shareholder support. Under the original terms of the deal, 50 percent of shareholders, excluding company insiders, must vote in favor of the offer. Any shareholder who did not cast a ballot would have been counted as votes against. However, in exchange for the higher per-share price, the board of directors agreed to modify that voting rule so that a “majority of disinterested shares actually voting on the matter” is not required.

Icahn chose not pursue his proposal not because of any worries about the declining personal computer industry, but because of Mr. Dell’s tactics. “We won, or at least thought we won, but when the board realized that they lost the vote, they simply ignored the outcome,” wrote Icahn, referring to the three times the vote was postponed.

With Icahn out of the way, Bloomberg learned through a source familiar with the go-private transaction that Dell and Silver Lake secured the votes necessary to approve the buyout, which will give shareholders $13.75 per share, plus a 13-cent special dividend and guaranteed payment of the company’s third-quarter dividend. Holders of two-thirds of the voting shares have indicated they support Mr. Dell’s proposal, added the source. Franklin Resources’ (NYSE:BEN), Franklin Mutual Advisers, and BlackRock (NYSE:BLK) are among those shareholders now in favor of the deal, the publication reported.

If Dell goes private, the deal will be the largest leveraged buyout since 2007, and even more importantly, it will close seven months of uncertainty for the world’s third largest computer manufacturer. Away from the pressure of Wall Street, the company will be able to begin transforming its business away from personal computers — a business that still accounts for nearly 50 percent of its revenues — to enterprise services in earnest, as Mr. Dell planned.

“It’s going to make the shareholder meeting a lot easier,” Cross Research analyst Shannon Cross told Bloomberg, referring to Icahn’s decision.

Icahn, a man known for taking large stakes in companies he judges to be ill-managed or undervalued and pushing for change, began amassing his 8.9 percent stake in the struggling personal computer manufacturer Dell earlier this year. His investing turned into a bid rivaling the go-private offer made by Mr. Dell at the beginning of March. With Icahn in the lead, many other large shareholders began to oppose the privatization proposal, causing Mr. Dell to postpone the shareholder vote over his bid multiple times.

Even though the ravaging effects of the stagnating personal computer industry helped to push Dell’s valuation to a price-to-forward earnings ratio of less than 9 before the offer was announced, a figure about 35 percent below the average multiple of its peers, many large shareholders argued for months that Mr. Dell’s proposal undervalued the company. They also argued that, by going private, the offer also unfairly eliminated the opportunity for investors in the company to participate in the planned revival.

Comparatively, Icahn and fellow shareholder Southeastern Asset Management proposed a tender offer for 72 percent of the company’s shares at $14 apiece, which would leave a portion of the company public and keep Dell largely a PC company. Shareholders were also promised one warrant for every four of their shares, and the warrant would give shareholders the right to buy one Dell share for $20 over the next seven years. Dell’s shares have not traded above $20 since September 2008.

“While we of course are saddened at our losing the battle to control Dell, it certainly makes the loss a lot more tolerable in that as a result of our involvement, Michael Dell/Silver Lake increased what they said was their ‘best and final offer,’” Icahn wrote in Monday’s letter. “As a result of this increase all stockholders are to receive many hundreds of millions of dollars more than the board originally accepted.”

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