Reports that pressure is mounting on the Michael Dell group to increase its bid for PC maker Dell are interesting, given that the company’s shares are still trading below the offer price. Michael Dell, along with private equity firm Silver Lake and Microsoft, agreed to acquire Dell in February for $13.65 a share. Since then, there have been several counteroffers, but those haven’t wowed Dell investors, given that shares are now trading below the offer price, at around $13.31.
Usually, a company’s stock price goes up if shareholders are expecting an increased buyout offer. There are obstacles to a deal that in theory would pressure Michael Dell to raise his bid, but investors may not believe those hurdles will ultimately force Michael Dell’s hand. One obstacle is that Dell’s large outside shareholders, Carl Icahn and Southeastern Asset Management, have a competing proposal that includes a recapitalization and special dividend. Certain conditions attached to that offer—namely that the group’s financing is contingent upon all of its 12 director nominees being elected to the board—weaken its chances. But the Icahn/Southeastern offer could just be a way to prompt Michael Dell to raise his offer.
Another obstacle: Dell’s special board committee is worried iffy investors may not approve the deal, which is why the committee is pushing Michael Dell to raise his offer. It could also be pressuring Michael Dell for other reasons, to prove to investors that it pushed the company’s founder for the best price. But given that Dell’s stock is trading at below the offer price, investors don’t appear to be expecting a bid hike.
Proxy shareholder advisory group Institutional Shareholder Services, which makes voting recommendations to shareholders, could also advise Dell investors against the Michael Dell buyout. That said, at this point big shareholders may have already formed their own opinions.
If investors do end up rejecting the Michael Dell deal, the stock price will likely drop, especially because Dell’s future prospects don’t look good. In May, the company reported a nearly 80% drop in profit due partly to falling PC sales. The shareholder vote on the Michael Dell deal is still two weeks away, which leaves plenty of time for more moves by Icahn, Michael Dell and others.