The fourth time could be a charm for Michael Dell.
After three earlier delays in July and August, Dell Inc. shareholders are expected to finally be able to cast their votes Thursday on the proposed company buyout led by by founder and CEO Michael Dell and his financial ally, Silver Lake Partners.
Why the change? Three main reasons: an improved buyout offer, the adoption of less onerous voting rules for approval, and the reluctance of a Delaware court to intervene in the process.
The likelihood of shareholder approval for the $24 billion-plus deal was in doubt for much of the summer, but analysts now say they expect Michael Dell will win approval on the fourth try and take his company private within the next month or so.
“It is all but done now,” said analyst Rob Enderle with the Enderle Group.
The Austin area’s economy has a clear stake in the outcome. Dell Inc. has grown into a global organization with more than 100,000 workers, including 14,000 in Central Texas. The company has said that, if the buyout is approved, it would continue to make investments that would result in more jobs worldwide, including in Central Texas.
If the Michael Dell-led buyout does win shareholder approval, the deal is expected to be completed in October, with Dell Inc. probably ending its 25-year run as a public company.
It hasn’t been an easy journey for the 48-year-old Michael Dell, who asked his board just over a year ago to start the process toward a buyout. He has repeatedly told investors, employees and customers that winning the buyout, taking the company private and revamping its business is the best chance to assure that the company with his name on it remains a vital force in computing.
Dell Inc.’s board solicited potential investment partners for months before endorsing the Michael Dell-led buyout offer. In March, the key opponent to the deal, billionaire investor activist Carl Icahn, showed up on the scene.
Since that time, the 77-year-old Icahn has waged verbal, financial and legal warfare against Dell Inc.’s management and board and against Michael Dell himself. Icahn has said the company’s founder was trying to buy Dell Inc. on the cheap and rob investors of the reward of a successful turnaround. Icahn never made a formal proposal to acquire Dell Inc., but he floated three separate investment concepts for the company, each designed to undermine support for the management buyout.
The arguments about the deal were conducted in news releases, filings with the Securities and Exchange Commission and PowerPoint slide presentations from both sides.
By late June, it became clear that the outcome of the vote for the buyout, priced at $13.65 a share, was in doubt. That was partly because several big institutional investors aligned themselves with Icahn against the deal at that price. And it was also because Michael Dell and his board unwittingly set a trap for themselves by allowing any shareholder votes not cast on the buyout to count against the deal. That created an opportunity for Icahn to sink the deal and then battle for control of the company.
As that situation became apparent, scheduled shareholders meetings were delayed three times. That gave Michael Dell and Silver Lake the time they needed to sweeten their buyout offer enough to convince the board to change the voting rules for approval and to change the “record date” for the deal. The record date is a cutoff date for shareholders who can vote in the buyout. By extending that date by nearly two months, Dell has allowed thousands of more recent investors in the company to have a vote in the buyout. Those recent investors are expected to be more inclined to vote for approval of the buyout.
The revised buyout offer is for $13.75 a share, plus a 13 cent special dividend plus the buyers’ promise that shareholders will receive the regular third quarter dividend of 8 cents.
Many analysts have repeated their advice to shareholders to take the buyout offer, arguing that a rejection of the offer would throw the company into a period of uncertainty during which the stock price probably would plunge. Last week, the company announced that the three major investment advisory services have supported the revised buyout offer just as they supported the original offer.
Icahn had filed a lawsuit against the Dell board challenging the process and asking a Delaware court to intervene. The lawsuit continues, but Judge Leo Strine ruled against Icahn’s request for a court intervention in the process on Aug. 16. “This court is not going to be dragged into a tactical game” between Icahn and the company, Strine said.
Icahn has been largely quiet about Dell Inc. in recent weeks, focusing his attention on another tech company, Apple Inc.
“It looks like Icahn has moved on to Apple. The court decision pretty much knocked (Icahn) out of the loop. It doesn’t look like he can stop the process,” said analyst Enderle.
The stock market appears to believe the deal will go through, with Dell’s stock trading just under the revised buyout price.
Meanwhile, the noise level from other big, disgruntled shareholders who were aligned with Icahn appears to have died down. One of those investors, T. Rowe Price Group, was reported to have reduced its Dell Inc. holdings, which totaled 4 percent of the company’s shares at the end of March. The Baltimore investment company declined to comment on that report.
Icahn might be able to continue his lawsuit against the company, but that suit could take years to decide. In the meantime, if he wins the vote, Michael Dell will be reshaping the company.
Icahn’s chances of being able to disrupt the process “are much lower now,” said Austin investment adviser Jim Nolen. “Icahn is an opportunist, and he saw an opportunity at Dell. I don’t know that he has given up. But I think he may have refocused his attention to Apple.”
While the big stockholders at Dell, especially Icahn and his ally Southeastern Asset Management, have been the biggest players in the buyout drama, plenty of small investors are also affected. That became clear at the latest called shareholder meeting in Round Rock on Aug. 2, which was delayed because of the revised offer.
Several small investors at that meeting expressed dismay over the buyout price because it is far lower than what they paid for the stock in past years. Timing is everything for those investors. For those who bought closer to Dell’s peak price of nearly $54 a share in March 2000, the buyout price seems like an enormous letdown. But for investors who were savvy enough to buy Dell Inc. stock last November when it was trading below $10 a share, the profits from the buyout should be substantial.
While Michael Dell might win the buyout battle, analysts say it could take several more years of hard work and investment before outsiders can tell whether his company can succeed in the turnaround the founder is talking about.
“It is going to be like Dell starting up again,” Nolen said. “There are big challenges ahead, but what is in his favor is that it is his company and his ego, and he is not going down without a fight. The competitive landscape in computing has changed and this is going to be his biggest challenge. I don’t count him out. I think he can be a bulldog.”
The company already has provided the broad outline for its turnaround effort. It told investors in a proxy statement that it intends to invest in technology, products and people who can help it become a stronger provider of “end-to-end information technology solutions.”
Michael Dell wants the company to be less reliant on personal computer sales and profits for his company’s future and much more reliant on sales of advanced hardware, software, security and services for “enterprise customers,” which include small and midsized companies and government agencies.
“If Michael succeeds,” Enderle said, “this could assure his legacy. When a founder has a company named after him, it becomes more important that the company continues.
“He will take risks and do things strategically to make sure the company will succeed over the long-term.”