Dell buyout deal hits rocky ground

July 18, 2013 // 11:07 a.m.

Tags: #carl-icahn #dell #financial #investment #michael-dell #microsoft #post-pc #post-pc-era

Plans by Michael Dell to take his eponymous company private could have hit a last-minute snag, as shareholders are reportedly planning to block the deal.

Following some poor performance as a result of the global slowdown in traditional PC sales, along with the unfortunate-in-retrospect decision to exit the mobile market just before its recent explosion. Rumoured back in January, the buyout was confirmed the following month with the news that an investment group led by Silver Lake and including software giant Microsoft would be picking the company up.

At the time, the deal was valued at $24.4 billion - a premium on the company's $21.35 billion market capitalisation, and a considerable sight more than the $1,000 Dell used to start the company back in 1988 - with shareholders being compensated accordingly for their holdings. That compensation, however, comes at the price of having no further interest in the company which would be taken private and delisted from the stock exchange - the first time that has happened since it went public in 1992 for $85 million.

Accordingly, not all shareholders are pleased with the plan. There are those who see it as a cash-grab by Dell and his investment partners ahead of the company's pending rebirth, and think that the $13.65 a share the deal values Dell at is simply too little when compared to the company's likelihood of future growth.

Officially, there's no news on the deal - but unofficially, sources close to the matter have told the Wall Street Journal that three existing investment groups - Vanguard Group, State Street and BlackRock - are threatening to lead a 'no' vote on the deal in order to shut Silver Lake out. Taken together, around 30 per cent of the company is owned by those three groups and others who have made their displeasure at the deal public.

The process of voting on the deal is expected to begin late tonight - early Thursday morning for the US-based company - with those in favour of the buyout likely to seek an adjournment in order to have more time to convince the naysayers as to the error of their ways. Even if it succeeds, the delay will be costly to the company: its share price has been slipping in recent months, and while many shareholders are hanging on in the hope of a bumper payout others may leave the sinking ship before the price falls any lower.

Should his bid to buy back his company fail, Dell himself could be in trouble too: Carl Icahn, the company's second-largest shareholder, has indicated that a failure of the bid would result in a vote of no-confidence against the board - and against the company founder himself. In other words: both Dell and his board could find themselves shut out from control of the company.

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