Michael Dell agreed to sweeten his proposal to buy Dell Inc to as much as $24.9 billion with a special dividend, winning concessions from the board committee that boost his odds of winning shareholder support for the deal.
Dell and partner Silver Lake Management LLC are offering a dividend of 13 cents a share on top of an already-increased $13.75-a-share bid for the computer maker, according to a statement on Friday from the board committee. In exchange, the investors holding the stock as of August 13 will be eligible to vote on the deal, and abstentions will no longer be counted as no ballots. The shareholder vote will be held on September 12.
The shares jumped the most since February to as high as $13.66, signalling investors will back Michael Dell's efforts after months of sparring with activists such as Carl Icahn, who pressed for a higher price or an alternative proposal. The shareholder vote had already been delayed twice after Michael Dell failed to muster enough support for the deal.
"At this point, the momentum has clearly shifted toward Michael Dell," Angelo Zino, an analyst at S&P Capital IQ in New York, said in an interview. "Just 24 hours ago it looked really bleak for him."
Dell rose 5.3 per cent to $13.64 at 11:40 am in New York.
Founder Dell is personally financing the extra dividend, or $230 million, by taking a further discount on his 15.6 per cent stake, according to a person close to the situation. Dell who rolled his stake into the original deal at $13.36 a share, is now doing so at about $12.52, said the person, who asked not to be named because the matter is private.
Michael Dell and Egon Durban, the Silver Lake partner leading negotiations for the private-equity fund, hashed out the new deal with the board while they were in Hawaii, said the same person. They reached an agreement on July 31 and hammered the final details on Thursday, the person said.
The offer replaces a bid of $13.65 a share for the personal-computer maker, which shareholders were scheduled to vote on Friday at Dell's headquarters in Round Rock, Texas. With the new proposal, shareholders also would be guaranteed to receive an eight-cent dividend next quarter, in line with previous periods.
The new offer adds as much as $470 million to the original bid, including the special dividend and the third-quarter payout, the board committee said.
The total includes the $120 million value of the quarterly dividend.
By taking the PC maker he started in 1984 private, founder Dell is seeking to transform it into a bigger provider of hardware, software and services for corporate-data centres, after years of ebbing sales and profit as consumers shift away from PCs toward computing on smartphones and tablets.
Icahn and fellow Dell investor Southeastern Asset Management Inc have made a series of alternative proposals to derail a takeover by Chief Executive Officer Dell, including a $14-a-share buyback. On Thursday, Icahn filed suit to block Dell from changing procedures for voting on the deal, accusing the founder of trying to "ram through" the buyout.
They also asked the board to hold the annual meeting - when shareholders would vote on his proposal if the LBO failed - at the same time as the vote on the LBO. The board, however, scheduled Dell's annual meeting for October 17.
At $13.96 a share, including the two dividends, the CEO's buyout might ultimately pass muster with Icahn, according to Jeff Fidacaro, an analyst at Monness Crespi Hardt & Co.
"He understands the alternative is that the deal does not get done, and there could be significant downside with the stock closer to $10 a share," Fidacaro said in an interview.
Icahn said on Twitter on Friday that "the war itself is far from over". He didn't respond to a request for comment, nor did a representative for Southeastern.
The sweetened bid won over Matt Halbower, founder of Pentwater Capital Management LP, a Chicago-based investment firm with $2.9 billion in assets under management. While he was previously opposed to the deal, he's now voting his 29 million shares in favour of the transaction.
"It is a fair result," said Halbower. "I am confident a majority of the Dell shareholders will agree and the vote will be successful."
Before Friday, Dell shares had been trading below the original $13.65 offer price since April, signaling investors weren't confident about the buyout group's ability to get the deal done, nor in alternatives proposed by Icahn and Southeastern. Since announcing the buyout on February 5, the company's special committee has argued that the company's prospects of a turnaround are better outside of the public lens.
Once the world's top supplier of PCs, Dell has spent billions of dollars on acquisitions over the past five years to add enterprise computing hardware, software and services, though the deals have yielded little return for investors. Meanwhile, the company has ceded the fast-growing mobile-computing market to Apple Inc and devices running Google Inc's Android operating system.