Uncertainty grows on the eve of Dell's buyout vote

Wed Jul 17, 2013 6:16pm EDT

Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference at the New York Stock Exchange in this June 27, 2007 file photograph. REUTERS/Chip East/Files

Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference at the New York Stock Exchange in this June 27, 2007 file photograph.

Credit: Reuters/Chip East/Files

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(Reuters) - Prospects of Dell Inc DELL.O founder Michael Dell and private equity firm Silver Lake taking the world's No. 3 PC maker private grew more uncertain on Wednesday, a day before a scheduled shareholder vote on their $24.4 billion offer.

The stock fell 1.1 percent to $12.88, its lowest level since July 5, as Dell's board considered delaying the vote amid reports that a growing number of shareholders opposed Michael Dell's $13.65 per share offer.

Dell may decide to delay the July 18 vote to gain time to win support for the deal, a person familiar with the matter said on Tuesday, asking not to be identified because the deliberations are confidential.

In an open letter to shareholders on Wednesday, billionaire activist Carl Icahn, who has amassed an 8.7 percent stake in Dell, said Dell's special board committee must allow a final vote to be completed on July 18 as scheduled. He once again urged shareholders to oppose the buyout.

Michael Dell and Silver Lake have so far resisted calls, including from Dell's special committee, to raise their offer.

Two people familiar with the matter said on Tuesday the bidders would stick to their offer even if the vote was postponed. The sources asked not to be identified because they were not authorized to speak to the media.

The steady stream of reports on shareholder opposition to the buyout continued on Wednesday. CNBC reported that Vanguard Group Inc, the largest U.S. mutual fund manager that has a 3.7 percent stake in Dell, would vote against the buyout. A Vanguard spokesman declined to comment.

Vanguard runs index funds that typically follow the lead of shareholder advisory firms. Its decision to defy all the three major advisory firms that have recommended the Dell buyout would add to the uncertainty over the vote outcome.

Other key minority shareholders, including BlackRock Inc (BLK.N), T. Rowe Price Group Inc (TROW.O), Highfields Capital Management, Pzena Investment Management and Yacktman Asset Management, have already come out against the buyout or have declined to comment on reports that they are against it.

Under so-called majority-of-the-minority voting provisions, a majority of Dell shareholders, excluding Michael Dell's roughly 16 percent stake in the company, have to vote for the buyout in order for it go through.

This means shareholders, other than Michael Dell, collectively owning almost 43 percent of the Round Rock, Texas-based company need to vote for the buyout for it to go through.

Accounting for the stakes of Icahn and his partner Southeastern Asset Management Inc, more than 20 percent of Dell's shareholder base, is known to be against the buyout. More could be planning to vote against or abstain.

Dell's special board committee will likely decide by Thursday morning whether to delay the vote, based on the number of votes that have been cast to block the buyout. Dell's board has set up the special committee to independently assess the best option for shareholders, without influence from Michael Dell, who is the company's chairman and chief executive officer.

Icahn has argued since March that Dell's founder is trying to steal the company away from shareholders almost 30 years after he founded it with just $1,000.

Icahn and Southeastern announced their latest alternative offer for Dell last week. It calls for a buyback of up to 1.1 billion shares at $14 apiece and a Dell warrant offered for every four shares held.

Each warrant would entitle the holder to buy one Dell share for $20 each within the next seven years.

Icahn estimates the value of his latest offer at $15.50 to $18 per share although Dell's special committee dispute this.

In order for his proposal to be put forward for consideration by Dell shareholders, he must first succeed in having Michael Dell's offer voted down and then win enough shareholder support to replace the members of Dell's board with his own nominees.

(Reporting by Nicola Leske, Jessica Toonkel and Greg Roumeliotis in New York and Ross Kerber in Boston; Editing by Gerald E. McCormick and Richard Chang)

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