Proxy advisory firm ISS backs Michael Dell's $24.4-bn bid
08 July 2013
Institutional Shareholder Services (ISS), the biggest proxy advisory firm in the US, today recommended that Dell Inc shareholders vote in favour of Michael Dell's $24.4-billion leveraged buyout offer.
The move came a few days after Bloomberg reported that Michael Dell and private equity firm Silver Lake Partners will not raise their $13.65 per share in cash offer. (See: Michael Dell not to raise bid)
''ISS recommends clients vote FOR this transaction, which offers a 25.5 percent 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," ISS wrote in a report.
Billionaire investor Carl Icahn, Dell's largest shareholder after Michael Dell, has been opposing the deal, and has proposed an alternative proposal of buying part of the company.
Icahn, with an 8.7-per cent stake, is proposing that the company buy back about 1.1 billion shares at $14 each, which would still leave a portion of Dell publicly traded saying his deal would allow investors to reap gains if the company is able to turn around.
But ISS said that Icahn's buyback plan has its own risks since shareholders need to reject Michael Dell's buyout offer and also replace the entire Dell board, which did not justify the extra 2.6-per cent cash offered under this proposal.
Although the PC business is dying and Dell missed the tablet boom, the Texas-based company did see the coming of the cloud computing boom and invested around $14 billion in this segment.
According to Icahn, although that investment will pay off in the coming years, Dell has estimated a 15-per cent return on that investment - a return which Icahn thinks that Michael Dell wants to cash in on by taking the company private at a bargain before these investments start paying off.
Analysts say, there may be some substance to the cloud computing investments, since Dell has invested heavily in this sector, but would an investor like Icahn be willing to wait for years to for returns on his investment, if at all.
Michael Dell, who has a 15.6 per cent stake in the company, had earlier said that Icahn's plans would bring the company under heavy debt and may not be able to withstand an economic or business downturn.
The outcome will be known when the he company's shareholders vote on deal on 18 July.