Choices: Closer look at 2 plans for Dell's future

AP News
Posted: Jul 24, 2013 6:50 PM

Dell Inc. delayed Wednesday's vote on founder Michael Dell's plan to take the computer maker private. The postponement came after Michael Dell and Silver Lake Partners sweetened their earlier $24.4 billion bid by about $150 million, or 10 cents per share.

The Round Rock, Texas, company is now giving shareholders until Aug. 2 to consider the offer, which works out to $13.75 per share. A special meeting is scheduled to begin at 9 a.m. CDT (10 a.m. EDT).

Activist investor Carl Icahn and the Southeastern Asset Management fund, which own 13 percent of the company combined, are trying to defeat Michael Dell's offer in hopes of persuading shareholders to back a competing proposal.

Here's a closer look at the two plans:


As has been the case since it was struck, the deal would take the company private if it's approved. The deal is now valued at $24.6 billion. Michael Dell, the CEO and the largest shareholder, is throwing in all of his stock and $750 million of his $15 billion fortune to help finance the sale to a group led by investment firm Silver Lake. Dell's stock-and-cash contributions to the deal are valued at about $4.5 billion. The plan calls for paying for most of this through loans, including $2 billion from longtime Dell partner Microsoft Corp.

If it succeeds: Michael Dell is hoping to evolve the company into a more diversified seller of technology services, business software and high-end computers — much the way IBM Corp. had successfully transformed itself in the 1990s. He believes he has a better chance of turning the company around in the long run if it didn't have to worry about Wall Street's quarter-to-quarter expectations.

Criticisms: Some big investors have signaled opposition to the bid. Icahn believes the offer undervalues the company's long-term prospects and gives Michael Dell and his backers an unfair opportunity to profit from a turnaround. The deal would saddle Dell with more than $15 billion in debt, which could raise doubts about its financial stability among its risk-averse corporate customers.

The status: The plan has the backing of Dell's board. Because of an agreement that Michael Dell wouldn't cast his shares, which represent about 16 percent of the company's stock, the board needs the support of slightly more than 42 percent of Dell's outstanding stock. Shareholders representing at least 20 percent of the votes were known to be in opposition.

Shareholders who don't cast ballots will be counted as being in opposition, a rule that Michael Dell and Silver Lake are demanding be changed as part of their "best and final" offer. They want the vote decided by the majority of votes that are cast, excluding the shareholders who don't make their preferences known. Dell's board hasn't said whether the company will change the voting rules at this late stage.

The vote remains open to shareholders of record on June 3, the same as before. The delay and increased bid gives Dell's board another chance to sway some of the opposing shareholders.


About the offer: Icahn and Southeastern Asset have proposed that the company buy back 1.1 billion shares at $14 each. They added another element this month that would give stockholders warrants to buy additional shares. Icahn has valued his plan at $15.50 to $18 per share. That plan calls for rewarding shareholders with some cash now, but leaving about a third of the shares outstanding for shareholders to benefit from a successful turnaround.

If it succeeds: Icahn and Southeastern want to replace the Dell board with their own slate of candidates and put their plan in effect. Icahn plans to oust Michael Dell as CEO, but hasn't said whom he has in mind to run the company.

Criticisms: A special committee of Dell's board calls the plan risky and short on details. One shareholder-advisory firm, Glass, Lewis & Co., says the certainty of a cash payout under the Michael Dell plan is better than the risk in continuing to hold Dell shares.

The status: No vote has been scheduled. Instead, Icahn would have to replace enough board members with his own candidates at Dell's annual shareholders meeting, which hasn't been scheduled yet.