News Column

CEO Might Have to Raise Bid for Dell

July 5, 2013

Michael Dell might have to ante up more money if he wants his $24.4 billion buyout offer for Dell Inc. to succeed.

That possibility was raised this week after the New York Times and other media outlets reported that the special committee to Dell's board of directors had met with the company's founder and CEO and encouraged him to raise his offer price.

The New York Times story said directors met with Michael Dell over the weekend and proposed raising the offer price above the existing offer of $13.65 a share. The newspaper, quoting "a person briefed on the matter," said Michael Dell "listened to the suggestion" but "did not commit to a course of action."

Various media reports suggested that Dell's board is feeling pressure from billionaire investor Carl Icahn, who on Monday confirmed that he had raised the financial backing he needs to offer $14 a share for about 72 percent of Dell's shares.

Dell's stockholders are scheduled to vote their shares on the Michael Dell/Silver Lake offer in a meeting July 18 in Round Rock.

Icahn and his ally, Memphis-based Southeastern Asset Management, are asking shareholders to reject that offer and to approve an Icahn-backed slate of directors for the company. If that happens, the company would be in position to approve the Icahn offer.

Dell's special committee "is growing worried that the buyout offer will fail to win a majority of shares" the New York Times reported, adding that Silver Lake has become increasingly concerned about Dell's worsening financial performance in the face of a continuing slump in global personal computer sales.

"At the moment," the newspaper reported, Silver Lake "would not be devastated if the deal fell apart."

That probably would put the burden of raising the offer price for the deal on Michael Dell himself. The CEO presently is offering his 15.6 percent share of Dell's stock plus an additional $750 million from his personal holdings to back the deal, while Silver Lake would put up $1.4 billion. The rest of the price would come from a consortium of banks.

Icahn is proposing to offer a package of $5.2 billion in loans, $7.5 billion of Dell Inc.'s cash and $2.9 billion to be raised from the financing of the company's receivables.

While Icahn has maintained that Michael Dell is not offering a price that reflects his company's true value, analysts contacted by the Statesman on Wednesday disagreed.

"We recommend investors take the Dell/Silver Lake deal at $13.65 and view it as the best outcome for investors," said Brian Marshall with ISI Group. "Dell Inc. is the most fundamentally challenged company we cover."

Analyst Ashok Kumar with Maxim Group said the Silver Lake offer for Dell Inc. is close to fair value for the company, which has been hurt by the downturn in the PC business. But he added that there still might be room for a small increase in the offer price in order to assure shareholder approval. Icahn's proposal for the company, the analyst said said, amounts of "financial engineering."

Icahn has suggested that if he wins control of the company, he will name a new CEO. But analyst Patrick Moorhead with Moor Insights & Strategy said tech observers are far from confident that Icahn, who has never run a tech company, has the capability to turn the company around.

Source: (c)2013 Austin American-Statesman, Texas. Distributed by MCT Information Services.

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