Can Michael Dell's New Offer Sway Investors?

Jul 25, 2013 (10:07 AM EDT)

Read the Original Article at

InformationWeek's Most Important Cover Stories
InformationWeek's Most Important Cover Stories
(click image for slideshow)
On Wednesday, Dell CEO Michael Dell delayed for the second time a shareholder vote on his proposed buyout of the company.

The first time, observers inferred that Dell would spend the week drumming up support and that the vote was likely to be close. This time, the company founder offered investors a better deal, upping his per-share offer from $13.65 to $13.75, and sweetening the bid by $150 million overall. In separate letters to shareholders and to the special committee overseeing the deal, Dell said the new offer is contingent on a change in the voting procedure. The demand further indicates that the company's future could come down to a small number of votes.

Under the original terms of the deal, investors who do not vote are counted against the CEO's proposal. Michael Dell owns almost 16% of the company but is excluded from voting, meaning he needs approval from almost 43% of shareholders to gain victory.

The CEO's bid to take the company private has been drawn-out and contentious, which could make investors more likely to vote. Outspoken critics Carl Icahn and Southeastern Asset hold 12% of shares, however, so even a modest amount of non-participation could swing the decision against Michael Dell.

[ Will Dell's software foray be a success? Read Dell's Software Shift: 4 Big Questions. ]

Under the revised terms, which the CEO termed his "best and final offer," Dell requested that non-voting members be excluded from the final tally. It "makes no sense whatsoever to skew the playing field," he said in the letter to shareholders. He told investors he will be "at peace either way and … will honor your decision."

In response to the CEO's new offer, the voting session was adjourned until Aug. 2.

The special committee is seeking $14 a share in exchange for the modified rules, according to a Bloomberg report. Silver Lake, the private equity firm with which Michael Dell is co-financing the buyout, is reportedly unwilling to meet this price, according to Reuters.

Icahn issued a statement decrying the extended voting delay.

"We think that – after six months – the time for soliciting is over," he wrote. "Do not move election day again."

Echoing statements he's made throughout the buyout process, Icahn also broadcast his sentiments over Twitter: "All would be swell at Dell if Michael and the board bid farewell."

Icahn's alternative deal offers $14 per share but keeps the company partially public. It also includes a warrant that allows investors to purchase additional shares later. Icahn has loudly contended that Michael Dell's proposal undervalues the company's long-term potential. Given the protracted voting drama, many Dell shareholders seem to agree.

Icahn's critics point out that he hasn't specifically articulated what Dell's long-term potential entails, however. Icahn's argument has focused more on Dell's ineffective leadership, and on the board's alleged failure to prioritize investors' best interests.

Icahn hasn't said whom he'd advocate for CEO, or how the company will operate if it takes on the amount of debt included in his proposal. If Michael Dell's offer is rejected, Icahn would still have to convince investors at a future meeting to remove the CEO. Under Michael Dell, the company has struggled to deal with the PC slump. That said, it has also projected a clear ambition: to become a major enterprise software and services player. Over the last several years, the company has assembled a variety of assets that can now be connected as end-to-end enterprise products but it's competing in a tough space, with HP, Cisco and many others.

Even in a best-case scenario, it will take a couple of years to rebalance Dell's revenue streams, which are currently too reliant on PC sales. This reality is the reason Michael Dell wants to go private -- and soon, investors will decide if he has the chance.