Battle for Dell yet to power down
When a takeover deal was announced in February, Dell looked set to be handed over to its founder, but billionaire Carl Icahn remains resolute in his opposition
“The decision is now yours,” he wrote. “I am at peace either way and I will honour your decision.”
In their own letter, Icahn and Southeastern said, “To change the rules at the last minute is outrageous.”
On the eve of a vote that was subsequently postponed, some big investors – including huge mutual funds run by the Vanguard Group and BlackRock – switched their votes to Yes. Some additional shareholders followed suit. But investors are free to change their minds until the vote is completed.
Dell and Silver Lake have argued that the hard work of transforming the company into a corporate software-services provider can succeed only away from the glare of the public markets and quarterly earnings calls.
The fundamental problem facing Dell is that sales of personal computers, which still count for more than 50 per cent of the company’s revenue, have slowed as consumer spending has shifted to smartphones and tablets. According to Gartner, a technology market analyst, demand for personal computers fell nearly 11 per cent in the second quarter of this year.
When the takeover deal was announced in early February, it appeared that Dell was destined to be handed over to its founder. It was carefully composed over almost half a year, with tough negotiations between Dell and a special committee of directors that nearly broke off over price a number of times.
But some potential rivals emerged, including Icahn and an alliance led by the Blackstone Group, setting up a potential three-way race for a company that had fallen behind both Hewlett-Packard and Lenovo of China. Blackstone soon withdrew after a stream of bad news, including falling Dell earnings and dismal reports from analysts on the state of the personal computer industry. The board committee ultimately supported Michael Dell’s offer, arguing that it was superior to alternatives, including those that would have kept the company public.
Icahn remained resolute in his opposition, however. He teamed up with Southeastern and said the board was biased towards its founder. He repeatedly called upon the company to instead borrow billions of dollars to finance a huge stock buyback to buy out investors at a premium while letting them keep a portion of their holdings and share in any revival the company enjoyed.
The Dell committee argued that such a plan was fraught with risk, pointing to multiple internal reports showing the company suffering further if it remained public. Icahn’s proposals, it said, also depended on investors throwing out the existing board and giving control of the company to him.
While Icahn has been critical of Michael Dell’s terms, he seems basically to agree about what the company needs to do. He says personal computers still have a place in the business world but need to be more tightly coupled with computer servers, software and networking gear. Dell has made the right kind of acquisitions, Icahn says, but he is not the man to save the company. – (New York Times)