Risks of rejecting offer outweigh risks of accepting, ISS says
In a surprise decision, proxy advisory firm ISS is urging Dell shareholders to accept the takeover bid by company founder Michael Dell and reject a bid for control by activist investor Carl Icahn to avoid a potential ‘meaningful loss of value’ in their shares.
The ISS support represents a major boost to the founder’s campaign to pay existing investors $13.65 per share and take the company private. Michael Dell says the proposed takeover, which faces a vote at the company’s annual meeting next week on July 15, would let him transform the company from a PC maker to a provider of cloud-based services.
‘After evaluating the risk of accepting the offer – truncation of value if the business transformation is successful – versus the risk of rejecting the offer – meaningful loss of value if the business transformation falters – ISS recommends clients vote FOR this transaction,’ the proxy adviser states, according to a summary in a Dell press release. The buyout attempt ‘offers a 25.5 percent premium to the unaffected share price, provides certainty of value and transfers the risk of the deteriorating PC business and the company’s ongoing business transformation to the buyout group.’
As early as last week, various media sources were speculating that ISS would recommend shareholders vote against the founder’s offer, with Bloomberg News citing unidentified people as saying the proxy advisory firm was leaning toward rejecting the deal.
‘We are pleased ISS has recommended, as we have, that Dell shareholders approve the $13.65 per share cash sale transaction,’ notes a press release issued by a special committee of Dell’s board of directors formed to analyze the offer. ‘We also believe rejection of this transaction would expose Dell and its shareholders to serious risks and uncertainties that will harm the company’s business and erode shareholder value.
‘With the assistance of outside advisers over the course of an exhaustive 10-month process, the committee has thoroughly reviewed Dell’s existing business plan as it seeks to transform its business model and various alternatives in support of that transformation. Given the company’s business challenges, intensifying competition and deteriorating industry trends, a sale at $13.65 per share in cash provides the highest value and greatest certainty of any available alternative.’
The company’s founder, who is backed by Silver Lake Management in his buyout offer, is engaged in a proxy battle with Icahn, who says shareholders stand to lose significant value and miss out on share price evaluation if a transformation of the company succeeds.
Icahn last month told investors the company would offer them $14 per share if they helped him foil the founder’s plan for a going-private transaction and name his candidates to the board of directors. Icahn has said the company can increase profitability and benefit existing shareholders more if it stays public.
