Pressure is building on Michael Dell to contribute more of his
own wealth if he wants to ensure that his planned buyout of
computer maker Dell Inc. (DELL) happens.
Shareholders are scheduled to vote July 18 on the $24.4 billion
offer by Mr. Dell and private-equity firm Silver Lake Partners to
take Dell private at $13.65 per share. It's possible the deal will
win shareholder approval as is.
But people around the deal are discussing options to help make
sure it gets across the finish line amid opposition from some vocal
big investors including Carl Icahn, the people say. And they don't
expect Menlo-Park, Calif.-based Silver Lake to contribute
further.
In any deal negotiation, it's common for suitors to say they
won't bump an offer until the last minute even if they are open to
doing so. But people involved in the Dell talks say Silver Lake has
made clear it's not kicking in more cash, while Mr. Dell has not
taken as hard a line.
Mr. Dell stepped in once before when Silver Lake declined to
ante up further. In January, talks between Silver Lake and the Dell
board committee negotiating the deal reached a near breaking point
over price, with Silver Lake refusing to offer more than $13.50,
according to a filing.
Silver Lake instead proposed to Mr. Dell that to increase their
bid, he take a discount on his shares, which would essentially
leave more money for other shareholders. After several days of
discussion, Mr. Dell agreed to roll over his shares in the deal at
$13.36 a share, the filing said. That allowed Silver Lake to offer
other shareholders more.
Mr. Dell has also been discussing with advisers how to proceed
in the event the buyout doesn't happen, one person familiar with
the talks said.
Silver Lake has committed $1.4 billion to the deal, while Mr.
Dell and his personal investment firm have committed $750 million.
Mr. Dell is also to roll over 273 million shares. Microsoft Corp.
(MSFT) has committed a $2 billion loan. About $13.8 billion is to
be raised in debt.
Separately, Tuesday, Dell announced the death of outside
director William H. Gray III, a board member since November 2000.
The former U.S. congressman previously served on the boards of
several other big companies including J.P. Morgan Chase & Co.
(JPM).
The threat of shareholder rejection of the buyout is real, say
people involved in the deal. Canvassing of shareholders ahead of
the vote has turned up mixed results, they say, and it remains
unclear how influential proxy advisory companies that advise big
investors how to vote in corporate elections will come down on the
offer.
Institutional Shareholder Services, viewed on Wall Street as the
most influential of the proxy-advisory services, has been peppering
the deal team with questions about whether the deal is a good value
for shareholders or whether the company should instead pursue a
"recapitalization" that involves borrowing and returning cash to
investors, people familiar with those discussions have said.
Harsh scrutiny from ISS is typical even in situations where the
firm ultimately backs a deal, but the nature of the questions
suggest ISS is probing concerns similar to those raised by
dissident shareholders Southeastern Asset Management Inc. and Mr.
Icahn.
"We are still working on this analysis," an ISS spokeswoman said
Tuesday.
Proxy advisers' advice has carried clout, although shareholders
don't always follow it. According to a 2002 study published in the
journal Financial Management, a negative recommendation on
management proposals from ISS influenced between 13.6% and 20.6% of
the vote.
Mr. Icahn last month nearly doubled his stake in the company
while also calling for it to launch a tender offer for 1.1 billion
shares at $14 each. The Dell special committee has not accepted Mr.
Icahn's offer; rather it has said Mr. Icahn's concept does not
adequately address certain risks. Dell board advisers are
evaluating nearly 200 pages of documentation for Mr. Icahn's
financing of a possible tender offer, according to a person
familiar with the matter.
For now, Mr. Icahn's proposal is not being voted on by
shareholders, nor is it expected to be addressed by ISS since it's
not officially before shareholders. His plan would likely only come
into play if the Silver Lake deal didn't happen and then,
separately, shareholders voted to replace existing directors with
Mr. Icahn's candidates. Mr. Icahn could then ask the new board to
consider his proposal.
-- Joann S. Lublin contributes to this article.
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