The chances of Dell Inc. being taken off the market have increased significantly. Influential advisory firm Institutional Shareholder Services, or I.S.S., recommended to shareholders that they accept private equity firm Silver Lake and founder Michael Dell’s $24.4 billion dollar offer to take the company private. The buyout would price Dell’s shares at $13.65.
This offer is being countered by billionaire investor Carl Icahn, who offered to buy out at $14 a share. The rejection of the higher offer is a major blow to Icahn, whose plan would have kept the company public but would have involved a multi-tiered, complex restructuring and taking on a lot of debt topay off unsatisfied investors. The proposed Icahn strategy, called a ‘leveraged shareholder buyout,’ is a first of its kind. I.S.S. did not appear impressed by it.
Dell investors will vote on the buyout offers on July 18. For Icahn to pull out a victory, he’s going to need investors to vote against the recommendation. And he’ll need the support of Dell-exposed ETFs like SPDR MS Technology (MTK), and AlphaDex funds Large Cap Value (FTA), Large Cap Core (FEX) and Multi Cap Value (FAB). And ETFs traditionally trust I.S.S. on buyout recommendations.
The recommendation to go with Michael Dell also appears to be an endorsement of his turnaround strategy for Dell. Dell’s PC business is declining sharply, and Dell plans on moving the company into enterprise hardware, software, and services markets. It’s a radical shift in strategy, though privatization would offer Dell the opportunity to engineer that shift outside of the scrutiny of public investors.
Dell is up 2.84 percent to $13.40 a share. The stock is also up on the year, gaining 32.20 percent since January, though it is still worth less than it was 10 years ago.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer