Thursday 19 April 2018

Dell thrown a lifeline as ISS endorses $24.4bn buyout

Michael Dell - bidding with private equity
Michael Dell - bidding with private equity

Aaron Ricadela and Serena Saitto

THE Irish American founder of Dell Computers looks set to win back full control of the business after his $24.4bn (€19bn) buyout was recommended as the best deal available by shareholder-advisory firm Institutional Shareholder Services (ISS).

The company employs more than 2,000 staff at sites in Dublin and Limerick.

ISS said the Michael Dell offer comes at a 25.5pc premium to Dell's pre-offer share price. It also cited the certainty of value that comes with an all-cash offer and the transfer of risk, given Dell's deteriorating PC business, as reasons for supporting the bid.

Michael Dell (pictured top) is bidding with private equity partners Silver Lake.

"The fear of a big drop in the stock below the $13.65 offer overcame the reluctance to let Michael pay too little for complete control of the company," Erik Gordon, a professor at the University of Michigan, said in an email.

ISS's influential recommendation could sway the final outcome because institutional investors look to ISS's findings for guidance on how to vote their shares. It also lessens pressure on Mr Dell to sweeten his offer. He is contributing his 16pc ownership in the company at $13.36 apiece compared with the $13.65 offered to other shareholders and another $750m in cash.

In German trading yesterday, the stock was down 0.2pc to the equivalent of $13.11. The stock closed at $13.03 in New York on July 5.

Michael Dell founded the company in his University of Texas bedroom in 1984. He took it public four years later, and Dell became the world's top PC maker, with a manufacturing system that turned out the machines faster and more cheaply than competitors.

As the computing market has shifted toward mobile devices like tablets and smartphones, Dell has struggled to remake itself.

"The issue facing Dell shareholders at this meeting has been framed in some media commentary as a choice between the sale to Michael Dell and Silver Lake Partners, or the leveraged recapitalisation proposed by Icahn and SAM. It is not," ISS said in its report, referring to Carl Icahn's efforts to counter Dell's offer.

"The alternative to accepting the buyout offer is to continue holding equity in a publicly-traded Dell, with continued exposure to the risks and rewards of ownership."

Icahn, teamed with Dell shareholder Southeastern Asset Management Inc, has pressed Dell to buy back about 1.1 billion shares at $14 apiece, while leaving the remainder of the company public.

Icahn has said Dell has a brighter future ahead and current shareholders should have the chance to participate in a turnaround.

Dell and Silver Lake Management aren't planning to sweeten their buyout offer because the proposal they made in February represents a fair and significant premium to where the stock would trade if the deal fell apart. And as, recently as last week, ISS was leaning against recommending Dell's offer.

Its recommendation is a decisive moment in the five-month tug of war over Dell, which is now headed into its final act.

Dell shareholders are scheduled to vote on July 18 on the leveraged buyout proposal at a meeting at the company's Round Rock, Texas, headquarters.

Mr Dell has said taking the company private will let him rebuild it as a supplier of data-centre equipment and software to reduce reliance on the flagging PC market after years of lacklustre growth. (Bloomberg)

Irish Independent

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