The Dell Inc. committee that is managing the company’s buyout process formally rejected an alternative proposal for the company by activist investor Carl Icahn, according to a company regulatory filing made Wednesday.
The special committee to the Dell board of directors said in a presentation to investors that the $24.4 billion buyout plan proposed by company CEO Michael Dell and Silver Lake Partners “is the best option for shareholders, including the superior value and the certainty is provides relative to all alternatives evaluated.” The Michael Dell/ Silver Lake proposal amounts to $13.65 a share in cash.
The panel rejected Icahn’s plan that called for a “leveraged recapitalization” of the company that would have paid each shareholder $12 a share in cash or in Dell stock valued at $1.65 a share. The plan would have been paid for from Dell’s existing cash holdings and from new borrowing. His plan was backed by Memphis-based Southeastern Asset Management Inc., the largest outside shareholder at Dell. Icahn and Southeastern together own about 12.9 percent of Dell’s stock. They have criticized the Michael Dell offer for the company as too low.
Icahn had submitted a letter proposing such a strategy to the Dell board of directors in May, but he never submitted a formal offer to the board and he didn’t supply additional information that the special committee requested. Icahn had no immediate comment on Wednesday’s Dell Inc. filing.
The special committee said that Icahn’s plan would have subjected shareholders to more risks and uncertainties in a weak personal computer market. It also said that its analysis of Icahn’s plan showed it likely would fall about $3.9 billion short of being able to pay Dell shareholders the proposed $12 cash dividend. Its analysis said that the resources available to the company would have reduced the Icahn-proposed dividend to $9.35 a share or less.
The presentation sends a signal to Dell shareholders that the field of potential buyers for the company has been narrowed to one, analysts said.
“They are responding to something (Icahn’s informal proposal) that they didn’t have a formal offer for,” said Austin financial consultant Jim Nolen, a retired finance lecturer at the University of Texas McCombs School of Business.
“They are helping shareholders decide that there is not another deal out there. They are formally rejecting the non-offer that they have (from Icahn). They have killed this deal altogether.”
Nolen said Icahn’s remaining options with Dell include suing the company’s board of directors, wage a proxy fight against the Michael Dell buyout plan with shareholders or make a formal hostile takeover bid for the company.
Meanwhile shareholders are being solicited to vote on the Michael Dell/ Silver Lake buyout offer with the results to be determined at a shareholders’ meeting in Round Rock on July 18.
The special committee is doing its job, Nolen said, by showing carefully that it has solicited many other potential buyers for the company over the past several months but has found no viable alternative.
“Their job is to try to create the most value for shareholders,” Nolen said. “In doing that, they have to formally present why they would accept one offer and reject the other.”
The special committee’s report appears to give Michael Dell the advantage in his buyout offer, Nolen said. The computer maker’s founder still must get a majority of Dell shares voted to approve the buyout, not counting the estimated 16 percent that Michael Dell and other senior managers of the company own or control. Those insider shares will not be counted in approving the deal.
“Michael Dell is in the driver’s seat at this point,” Nolen said. “Unless the deal is in jeopardy, he has no incentive to raise the offer price.”
Analyst Roger Kay with Endpoint Technologies Associates put the situation more simply. “Let the proxy battle begin,” he said. “The dissidents are now in a position where their only recourse is to fight the proxy battle and to win it in some way.
“It was always clear that Michael Dell had the only viable proposal for the company and the only one that has a chance of winning.”
If Dell shareholders vote down the buyout proposal, Kay and other analysts expect the company’s stock price will drop. “There is about a 30 percent premium built into the price based on the expectation that the deal would go through,” Kay said. “Existing shareholders are between a rock and a hard price. They are looking at taking $13.65 (the Michael Dell offer price) versus the risk of it going to $9 ” if the buyout is not approved.
Dell is the largest private employer in Central Texas with about 14,000 workers here.