Dell’s buyers will have to woo investors disappointed by buyout price

February 5, 2013
February 5, 2013

Dell’s share price opened at $13.36 today, meaning investors were not blown away by the $13.65 per share offer for the PC maker, so the company and its buyers may have to work harder to entice shareholders to approve the deal.

Dell chief executive Michael Dell, who owns about a 16% stake in the company, private equity firm Silver Lake, and Microsoft are taking Dell private in a deal worth $24.4 billion. The offer reflects about a 25% premium to Dell’s closing price of $10.88 on Jan. 11, where the stock was trading before media reports on a Dell buyout first surfaced.

Many investors were hoping for an offer closer to $14 a share, and initial media reports had the offer range at $13 to $14. On Friday, Dell’s stock opened at $14.02 and closed at $13.63. Tuesday’s opening price is only a slight increase from the stock’s closing of $13.27 on Monday, when investors were disappointed that a deal hadn’t been announced yet.

Now that the deal is done, the lobbying of shareholders to convince them to vote for the deal will begin. If it looks like Dell investors aren’t swayed, the company may have to throw in a financial incentive, such as a special dividend, to sweeten the deal for shareholders.

But Dell’s buyers also don’t want to bid against themselves, especially if it looks like there are no other suitors, which will likely be the case given Dell’s size. What Dell and its buyers do to try to woo shareholders will show how badly they want the company, while shareholders will have to figure out whether they want to take the money and run if nothing better comes along.

Corporate governance rules suggest Dell, the man, who is the company’s largest shareholder, will likely not be able to participate in the shareholder vote considering the deal. He would get a majority stake in his company as part of the leveraged buyout.

As a result, the view of the company’s second largest shareholder, Southeastern Asset Management, could play an important role. The money manager has about a 7.5% stake in Dell. A person familiar with the matter says Southeastern is worried that Michael Dell could be getting his company on the cheap.

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