Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Dell Shareholders Approve $25 Billion Buyout to Go Private

dell_brainstormMichael Dell and the private equity firm Silver Lake have prevailed in their 14-month effort to convince shareholders in the computing company Dell to take the company private in a leveraged buyout.

The result of a shareholder vote was announced moments ago at a special meeting of shareholders in Round Rock, Texas. The final vote tallies haven’t been released yet, but CNBC, citing sources familiar with the result, have pegged the vote in favor at 65 percent to 35 percent. A final tally will be read out a little later, as the meeting is still under way.

The final buyout price is $13.75 per share, and includes a 13 cent per share special dividend, for a total price of $13.88, or $24.9 billion. The deal also guarantees an eight cent per share quarterly dividend when Dell next reports earnings, in November.

The vote brings to an apparent close a rancorous process during which numerous Dell shareholders lined up to oppose Dell and Silver Lake.

The process began in June of 2012, when the investment firm Southeastern Asset Management, a longtime Dell investor and until recently its No. 2 shareholder, first contacted Michael Dell about the possibility of going private. Dell held his first conversations with people from Silver Lake at a technology industry conference in Aspen, Colo., the following month.

Ironically, Southeastern became one of the leading voices in opposition to the transaction that ultimately emerged. Soon, the activist investor Carl Icahn had picked up the torch, and bought out much of Southeastern’s stake, and became Dell’s No. 2 investor, after Michael Dell himself.

Icahn and Southeastern proposed their own alternative transaction, which they described as a structured recapitalization. Under their plan, they would have bought up 72 percent of Dell shares and left the remaining stake as a publicly traded stub. They further proposed to take on new debt and to pay a special dividend to shareholders, and to issue warrants for the purchase of additional shares within a seven-year window. They argued that the Dell-Silver Lake proposal undervalued the company and locked out current investors from benefiting from any future turnaround of the company that might occur.

For months, the wrangling between them threatened to result in a split board of directors and a prolonged proxy fight for control of the company, as neither side had sufficient support among shareholders to take full control.

Icahn took his fight against the transaction public, via numerous open letters to shareholders and to his relatively new Twitter account, where at times he needled Dell management in labored verse.

Earlier this week, Icahn conceded that he had lost the battle to take control of Dell. However, he has said he intends to ask a court in Delaware to appraise the company’s value in the hope of forcing a higher payout. Given the size of his holdings, Icahn has already realized a $70 million profit on his Dell shares.

The company has been struggling with the long-term decline in the personal computer business, while at the same time trying to transform itself into a bigger player in enterprise hardware, software and services. But those efforts at transformation have been uneven, and the majority of Dell’s revenue is either derived directly from PCs or from ancillary products like desktop displays and accessories.

Update: 11:45 am ET: According to a filing with the SEC, Southeastern Asset Management is no longer working in concert with Carl Icahn. It’s investment stake in Dell is now 3.7 percent. Here’s the statement in full:

Today’s preliminary results show that Michael Dell and Silver Lake have been successful in obtaining shareholder approval for the transaction. Accordingly, Southeastern and Icahn Enterprises, Inc. and its affiliates (“Icahn”) have terminated their agreement to cooperate regarding an alternative proposal and the nomination of a slate of directors at the annual meeting. As a result, Southeastern and Icahn are no longer “acting in concert” for 13D purposes, and are therefore no longer part of a “group.”

And here’s Dell’s original press release announcing the approval of the deal:

Dell Stockholders Approve Merger Transaction

ROUND ROCK, Texas –(BUSINESS WIRE)–

Dell today announced that, based on a preliminary vote tally from the special meeting of stockholders, Dell stockholders have approved the proposal in which Michael Dell, Dell’s Founder, Chairman and CEO, will acquire Dell in partnership with global technology investment firm Silver Lake Partners.

In connection with the transaction, Dell stockholders will receive $13.75 in cash for each share of Dell common stock they hold, plus payment of a special cash dividend of $0.13 per share to stockholders of record as of a date prior to the effective time of the merger, for total consideration of $13.88 per share in cash. The agreement also guarantees the regular quarterly dividend of $0.08 per share for the fiscal third quarter would be paid to holders of record as of a date prior to closing. The total transaction is valued at approximately $24.9 billion.

The preliminary vote tally shows that the transaction was approved by the holders of a majority of Dell’s outstanding shares, as required by Delaware law. In addition, the tally shows that the transaction was approved by the holders of a majority of Dell’s shares voting for or against the matter, excluding shares held by Mr. Dell, certain of his related family trusts, Dell’s Board of Directors and certain members of its management, as separately required under the merger agreement.

“I am pleased with this outcome and am energized to continue building Dell into the industry’s leading provider of scalable, end-to-end technology solutions,” said Michael Dell, chairman and CEO of Dell. “As a private enterprise, with a strong private-equity partner, we’ll serve our customers with a single-minded purpose and drive the innovations that will help them achieve their goals.”

Mr. Dell continued, “I would like to thank our 110,000 team members around the world who, throughout this process, have remained focused on serving our customers with unity, purpose and pride. As our company continues to expand its enterprise solutions and services business, our team members will be Dell’s most valuable asset and the key to our future success.”

“Over the course of more than a year, the Special Committee and its advisors conducted a disciplined and independent process to ensure the best outcome for Dell stockholders,” said Alex Mandl, chairman of the Special Committee formed to evaluate the transaction and other strategic alternatives. “By voting in favor of the transaction, the stockholders have chosen the best option to maximize the value of their shares. I want to thank my fellow Committee members and the entire Board for their diligent and tireless efforts on behalf of Dell stockholders, and the stockholders themselves for the careful consideration they gave to this important matter.”

The transaction is expected to close before the end of the third quarter of Dell’s FY2014, subject to the satisfaction of customary closing conditions, including regulatory approval. Dell will continue to be headquartered in Round Rock, Texas.


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