ISS Backs $24.4 Billion Dell-Silver Lake Buyout Plan
The $24.4 billion buyout plan for the struggling computer maker Dell got a major endorsement today, as the proxy advisory firm Institutional Shareholder Services endorsed it as the best course that shareholders should follow.
The ISS opinion can’t help but be seen as a blow to Carl Icahn, who had rallied Dell shareholders that have been critical of the deal, including the investment company Southeastern Asset Management. Icahn has floated a proposal to buy up to 72 percent of existing shares, pay a special dividend and leave a portion of the company publicly traded.
The ISS report (excerpts here) also takes a lot of pressure off Michael Dell to bring more money to the table and boost his offer. There had been worries in some circles that ISS had focused too closely on Icahn’s plan to offer $14 a share for most of Dell’s existing shares versus the Dell-Silver Lake bid of $13.65 for all of them. People familiar with the process and the tone and tenor of meetings with ISS had come away feeling that the firm’s analysts had viewed the situation “simplistically.” These people came away convinced that ISS would recommend that shareholders reject the deal. Clearly, they were wrong.
ISS cited the 25.5 percent premium Dell and Silver Lake have offered on Dell shares before early reports of the offer boosted the company’s share price earlier this year. It also said that the offer provides “certainty of value,” and shifts risk of the declining PC business away from shareholders and onto Dell and Silver Lake.
The report from ISS is not what was expected last week. On Friday, the consensus of opinion seemed to be coalescing around the possibility that ISS would recommend against the deal. Since so many institutional shareholders like mutual funds, index funds and others either vote with ISS automatically or give its opinion significant weight.
But the vote could still be close. Since Michael Dell, who holds about 16 percent of the company’s shares, isn’t allowed to vote, the faction of shareholders who oppose the deal could still conceivably rally. Up to now, shareholders who control about 18 percent and change of the outstanding shares — Icahn, Southeastern and mutual fund company T. Rowe Price — have said they oppose it. A majority of about 43 percent is needed for the deal to pass.
There’s also a second proxy firm to be heard from: Glass, Lewis & Co. While ISS is considered the bigger and more authoritative player in the proxy advisory business, Glass Lewis carries some heft. The intensity of fireworks that you may expect between now and the July 18 shareholder vote will vary a bit as its opinion comes out in line with or against that of ISS.
It’s also important to note that ISS isn’t the final or definitive word on deals like this. As The Wall Street Journal pointed out this morning, in 2011, when ISS recommended against a similar buyout of clothing retailer J. Crew, shareholders went the other way. When it advised in favor of a takeover of Dynegy, shareholders rejected it. In another high-profile instance, ISS earlier favored a proposal to strip Jamie Dimon of his role as chairman of investment bank J.P. Morgan, but shareholders voted the other way. So, make no mistake, this vote could still be close.
The special committee of Dell’s board overseeing the go-private process just issued a statement:
“We are pleased that ISS has recommended, as we have, that Dell shareholders approve the $13.65 per share cash sale transaction. With the assistance of outside advisors over the course of an exhaustive 10-month process, the Committee has thoroughly reviewed Dell’s existing business plan as it seeks to transform its business model and various alternatives in support of that transformation. 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.”
Expect a counter-statement from Carl Icahn before the day is out.
Dell shares are up by more than two percent in premarket trading this morning. As of 7:40 am ET, they were up 36 cents, or 2.8 percent, to $13.39, still 26 cents below the $13.65 Dell and Silver Lake have offered to buy out all of the company’s shares.