Only days after reports that Dell (DELL) founder Michael Dell's and Silver Lake Partners’ $24.4 billion private buyout offer needed some shoring up to pass a scheduled July 18 shareholder vote, the influential advisory firm Institutional Shareholder Services (ISS) said it will back the proposal.
ISS based its opinion not only on price but also taking into consideration Dell’s entrenched efforts to transform from a PC maker to a solutions and services provider. Michael Dell has long contended that overhauling the company is best done as a private company apart from quarterly public scrutiny.
In summarizing its opinion, ISS said, in a statement: “After evaluating the risk of accepting the offer – truncation of value if the business transformation is successful – versus the risk of rejecting the offer – meaningful loss of value if the business transformation falters – ISS recommends clients vote FOR this transaction, which offers a 25.5% premium to the unaffected share price, provides certainty of value, and transfers the risk of the deteriorating PC business and the company's on-going business transformation to the buyout group.”
In response, Dell’s Special Committee said, in a statement: “Given the Company’s business challenges, intensifying competition and deteriorating industry trends, a sale at $13.65 per share in cash provides the highest value and greatest certainty of any available alternative. We also believe rejection of this transaction would expose Dell and its shareholders to serious risks and uncertainties that will harm the Company’s business and erode shareholder value.”
According to an earlier Reuters report, a number of large shareholders have pushed Michael Dell and Silver Lake to improve their $13.65 per share offer to no avail.
That Michael Dell and Silver Lake have gained ISS’ nod is a significant blow to activist investor Carl Icahn’s counter offer for control of the company owing to the proxy advisory firm’s influence. Icahn’s bid for Dell would keep the company publicly held and boost shareholder value by buying back more than one billion shares at prices up to $14 per share. Icahn’s proposal calls for funding the offer with $5.2 billion in debt, $7.5 billion in Dell cash and $2.9 billion from the sale of Dell receivables.
Dell’s Special Committee has complained that Icahn lacked the necessary funds to pull off the deal but he recently claimed he’s raised the necessary money. In backing Michael Dell's and Silver Lake's offer, ISS said that even if shareholders were to reject the bid, many more steps would be required to affirm Icahn’s proposal.
"They must also vote to replace the entire board and the CEO through a proxy contest at a subsequent annual meeting, and even then may end up with cash and equity if the envisioned selftender is oversubscribed," ISS said.
Icahn contends that Michael Dell is offering shareholders a "bargain price" to buy back the company he founded.