Rumors of a deal sent the shares higher before the board announced the agreement with Michael Dell and other investors on Feb. 5. A four-member special committee of the Dell board recommended that shareholders take the buyout, saying that it minimized their risk and gave them an all-cash payment at a premium over the share price before news of a possible deal leaked.
The committee said that it had wrangled six price increases from the group and that despite contacting dozens of other potential buyers, no superior offers emerged. One possible buyer, private equity firm Blackstone Group LP, dropped out in April, citing Dell's "rapidly eroding financial profile."
Icahn and Southeastern Asset Management have said that the buyout offer undervalues Dell, an opinion that has been echoed publicly by at least four more of Dell's top 20 shareholders. Icahn has proposed that the company buy back 1.1 billion shares at $14 each and added another element last week that will give stockholders warrants to buy additional shares. He has valued his plan at $15.50 to $18 per share.
If Icahn and Southeastern succeed in defeating the private-buyout offer, they would seek to replace the Dell board with their own slate of candidates and put their plan in effect. Icahn plans to oust Michael Dell as CEO, but hasn't said whom he has in mind to run the company.
Michael Dell's group got a boost when that offer was endorsed by three big shareholder-advising firms.
One of them, Glass, Lewis & Co., said it sympathized with those who believe the buyout offer was too low, "especially considering that many of the unhappy shareholders are long-term investors in Dell who likely purchased the stock at higher average prices" than $13.65. Still, the firm said, the certainty of a cash payout was better than the risk in continuing to hold Dell shares, which it said would fall "significantly" if the buyout is rejected — maybe by nearly half.
Dell's stock fell 14 cents, or 1.1 percent, to close Wednesday at $12.88, below the $13.65 offered in the buyout. That's an indication that investors aren't holding out for a higher bid. Some analysts fear the stock will sink below $9 again if the deal with Michael Dell falls apart.
Michael Dell, the company's largest shareholder, is throwing in all of his stock and $750 million of his $16 billion fortune to help finance the sale to a group led by the investment firm Silver Lake. Dell's stock-and-cash contributions to the deal are valued at about $4.5 billion.
Software maker Microsoft, which counts Dell among its biggest customers, is backing the deal by lending $2 billion to the buyers. The remaining money to pay for the acquisition is being borrowed through loans arranged by several banks, saddling Dell with more than $15 billion in debt that could raise doubts about its financial stability among its risk-averse corporate customers.
The sale is structured as a leveraged buyout, which requires the acquired company to repay the debt taken on to finance the deal. Dell's sale is the second-highest-priced leveraged buyout of a technology company, trailing the $27 billion paid for First Data Corp. in 2007.
The Dell story is now famous: A 19-year-old started a business in 1983 by selling computer disk drives from his dorm room at the University of Texas at Austin. Soon he was assembling computers and undercutting conventional retailers on price. He then raised $30 million by taking the company public in 1988. Dell went on to change the PC business with low costs, customized orders and direct sales — first over the phone and later the Internet. The CEO climbed the ranks of the richest Americans.
In 2004, when Dell stepped aside as CEO, sales topped $40 billion a year and were on their way to more than $60 billion. Dell returned as CEO in 2007, after the company had fallen behind Hewlett-Packard Co. as the world's largest PC maker and after it endured an accounting scandal that resulted in a $100 million corporate penalty and Dell himself paying $4 million. The company's stock is down by more than 40 percent from where it stood when Dell returned for his second stint as CEO.