Michael S Dell may have to dig deeper into his pockets if he wants his $24.4 billion bid for the computer company he founded to succeed.
A special committee of Dell's directors encouraged him over the weekend to raise the deal's offer price of $13.65 a share, a person briefed on the matter said Tuesday.
While Dell listened to the suggestion, he did not commit to a course of action. Furthermore, Dell and his private equity partner in the deal, Silver Lake, have not had any discussions about raising the current price, according to a person close to the firm.
Yet pressure is building on the buyout as two big Dell shareholders - Carl C. Icahn and the asset manager Southeastern Asset Management - continue to attack the deal with a shareholder vote drawing rapidly near.
The special committee is growing worried that the buyout offer will fail to win a majority of Dell shares that excludes Michael Dell's 16 per cent stake at the vote July 18, the person briefed on the matter said. Some 43 per cent of the Dell shares need to be voted in favor of the offer. The directors have already taken a number of meetings with major investors that have left them pessimistic about the bid's prospects, and now believe that a major shareholder advisory firm is poised to recommend a rejection of the takeover.
Dell's offer, made in partnership with Silver Lake, has been criticized for months by a number of big outside investors. But any bump in price would most likely come from the company founder, who already made concessions to reach the current price.
Silver Lake, which had refused to raise the bid beyond $13.60 at one point, has become increasingly worried about the deterioration of Dell's business, a person close to the firm said. At the moment, it would not be devastated if the deal fell apart.
That has left Michael Dell - who agreed to contribute his 16
per cent stake in the company at a price of $13.36 to leave more money for other shareholders - the most likely source of additional money.
Yet any bump in price from Dell would still need the assent of Silver Lake, since that would affect the returns on its investment.
A representative for Michael Dell was not immediately available for comment.
The pressure on the current offer stems from the billionaire Icahn and Southeastern Asset Management. They are campaigning for an alternative plan: a huge stock buyback that would pay investors $14 a share and leave the company publicly traded.
Icahn pressed his attack in recent days, outlining the $5.2 billion in debt financing he has arranged with the investment bank Jefferies to support his proposal.
Other shareholders appear to have been little moved by Icahn's announcements: Dell's stock has risen 0.2 per cent over the past five days, ending Tuesday at $13.38.
The special board committee has heard from a number of investors that the current offer price was insufficient. And a tough meeting with Institutional Shareholder Services, the most influential proxy advisory firm, left directors with the impression that it would urge shareholders to vote down the transaction.
ISS is expected to release its recommendation next week, and could still recommend that shareholders adopt Michael Dell's offer. It has told Dell's committee that it is weighing the merits of the management buyout against inaction, and would not factor in an alternative plan like Icahn's.
Traditionally, ISS' recommendations have held enormous sway over institutional investors, although in recent years the firm's influence appears to have waned somewhat. Still, Dell's special committee believes that a recommendation for the buyout would ensure its passage.
The special committee's approach was reported earlier by a TV channel.
Source: Economic Times