July 24, 2013 / 5:00 AM / in 4 years

SCENARIOS-Crunch time for Michael Dell's buyout deal

ROUND ROCK, Texas, July 24 (Reuters) - Dell Inc shareholders converge again in Texas on Wednesday to vote on CEO Michael Dell’s $24.4 billion buyout offer, after a previous meeting was pushed back a week to buy time to convert investors on the fence about the landmark deal.

A meeting was called last week at Dell’s headquarters on the outskirts of Austin, but adjourned within minutes. The company founder and partners Silver Lake had failed to secure enough votes to seal the largest buyout since the financial crisis, which would end by taking the No. 3 PC maker private.

Complicating matters, activist investor Carl Icahn and major Dell shareholder Southeastern Asset Management repeatedly argue that the offer undervalues the company and its growth prospects, and have offered an alternative deal of their own.

Since then, both camps have redoubled their efforts to persuade stakeholders to defect to their side.


Longer term, this means Dell will no longer be a public company and Michael Dell and his private equity partner Silver Lake will get their chance to turn it around away from public scrutiny.

But since the results are likely to be close, shareholders opposed to the buyout could exercise their Delaware appraisal rights, which basically means they are free to appeal to a Delaware judge to value their shares. The option, however, is costly and time-consuming with no guarantee a judge would see things differently from Michael Dell.

Icahn at one point in the past few months threatened “years of litigation” should he not get his way. He may still resort to legal means to contest the deal.


This may have a number of implications.

DISRUPTION - There will be continued uncertainty and disruption within the company. Analysts had warned that customers will defect because service could worsen during the struggle to turn the company private or keep it public.

Michael Dell has pledged to remain committed to the company he founded if his attempt fails.

BATTLE FOR THE BOARD - A pitched battle between Michael Dell and Icahn over control of the board may emerge. Icahn has already announced his own slate of board directors, though some analysts have questioned their credentials and turnaround expertise.

Icahn has called for a quick annual shareholders’ meeting, at which investors can vote on nominated directors. He needs his new board to be elected to be able to put forward, for a vote, an earlier offer he made in partnership with Southeastern.

Michael Dell is expected to float the current slate of directors, with a few additions.

HIGHER BID FROM MICHAEL DELL AND SILVER LAKE - Michael Dell, after months of maintaining that the shares are worth $13.65 a piece, may decide to bump up the offer to appease disgruntled shareholders and close the deal. Any bump in the price will likely have to come from Michael Dell as Silver Lake had declined to raise its contribution further during late-stage negotiations leading up to the Feb. 5 buyout agreement.

The Dell founder then agreed to roll over his shares at $13.36 each to subsidize and finalize the deal at the $13.65 offered to shareholders. The current offer is the sixth one since discussions started in earnest in October.

However, Michael Dell and Silver Lake have ruled out raising their offer even if a vote is delayed, said people familiar with the plan on Tuesday, asking not to be identified because the deliberations are confidential.

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