Silver Lake Group Strikes New Deal For Dell

Aug 2 2013 | 11:17am ET

Michael Dell appears to have snatched a last-minute victory for his proposed private-equity-backed buyout of the computermarker he founded nearly 30 years ago.

Dell and the special committee of Dell Inc.'s board overseeing the sale reached a new agreement that will both pay investors more and make it easier for deal to win shareholder approval. Under the terms of the deal, Dell and Silver Lake Partners will pay $13.75 per share, and Dell himself will finance a special dividend of 13 cents per share. In exchange, Dell has agreed to change voting rules that counted abstentions as "no" votes and to delay the vote on the buyout for a fourth time, to Sept. 12.

In addition, Dell agreed to change the record date to Aug. 13, meaning that investors that have bought shares since June 3 will be permitted to vote. Such shareholders are seen as more likely to favor the transaction than longer-term shareholders.

But the rule change is most crucial: Recent tallies have shown that the buyout has the support of the majority of shares voting, but about one-quarter of shares remained unvoted. Dell himself is still not permitted to vote his 15.7% stake in the company.

The new deal will pay $24.8 billion for Dell, $400 million more than the February proposal. Dell investors will also be entitled to three quarterly dividends totalling 24 cents per share.

The deal had appeared on the verge of collapsing after the special committee rejected Dell's and Silver Lake's most recent offer, which boosted the sale price by 10 cents per share in exchange for a change in the voting rules. The original proposal was set to go to a vote today.

Silver Lake, in particular, was seen as strongly opposed to a higher offer, forcing Dell to dig into his own pockets, accepting a lower share price for his stake, to save the deal.

The head of the special committee, Alex Mandl, defended the new deal, saying that circumstances had changed.

"The original voting standard was set at a time when the decision before the shareholders was between a going-private transaction and a continuation of the status quo," he said. "Since then, the nature of the choice facing stockholders has changed because of the emergence of an alternative proposal by certain stockholders. In the context of the current decision, the committee does not believe it is appropriate to count shares that have not been voted as having been voted in support of any particular alternative."

That alternative had been put forward by Carl Icahn and Southeastern Asset Management, who are pushing for the rejection of the buyout. The two have instead proposed replacing Dell's board and paying a launched a $14-per-share buyback program that would keep the company public.

Icahn sued Dell and its board yesterday to prevent the board from changing the voting rules. Icahn also asked the Delaware Chancery Court to bar Michael Dell from voting any shares he's acquired at a the company's next annual meeting.

For its part, Dell has rejected Icahn's effort to force an annual meeting to depose the board. Dell said its annual meeting would be held on Oct. 17, a month after the Dell-Silver Lake Deal is set to be approved.


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