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Choices: Closer look at 2 plans for Dell's future

Monday - 8/5/2013, 3:22pm  ET

FILE - In this Nov. 2, 2010, file photo, Michael Dell, chairman and chief executive officer of Dell Inc., speaks during a meeting in Hong Kong. Dell's board has agreed to an increased offer from founder Michael Dell that would add a special dividend to shareholders. Shareholders were scheduled to vote Friday, Aug. 2, 2013, on a lower offer to buy the company but that vote has been postponed. (AP Photo/Kin Cheung, File)

MICHAEL LIEDTKE
AP Technology Writer

SAN FRANCISCO (AP) -- Dell Inc. delayed Friday's vote on founder Michael Dell's plan to take the computer maker private. The postponement came after Michael Dell and Silver Lake Partners added a special dividend of 13 cents per share on top of an already sweetened bid of $24.6 billion, or $13.75 per share. They originally had offered $24.4 billion, or $13.65 per share.

The company is now giving shareholders until Sept. 12 to consider the offer. The meeting will be held at Dell's headquarters in Round Rock, Texas, near Austin.

Activist investor Carl Icahn and the Southeastern Asset Management fund, which own 13 percent of the company combined, are trying to defeat Michael Dell's offer in hopes of persuading shareholders to back a competing proposal.

Here's a closer look at the two plans:

MICHAEL DELL/SILVER LAKE

As has been the case since it was struck, the deal would take the company private if it's approved. Michael Dell, the CEO and the largest shareholder, is throwing in all of his stock and $750 million of his $15 billion fortune to help finance the sale to a group led by investment firm Silver Lake. Dell's stock-and-cash contributions to the deal are valued at about $4.5 billion. The plan calls for paying for most of this through loans, including $2 billion from longtime Dell partner Microsoft Corp.

As an additional enticement, Michael Dell and Silver Lake will pay stockholders a one-time dividend of 13 cents per share. Michael Dell and Silver Lake also are guaranteeing payment of Dell's regularly scheduled dividend of 8 cents per share for the fiscal quarter ending in early November.

In exchange for ensuring shareholders will receive the extra money, Michael Dell and Silver Lake received a key concession. Dell's board agreed that the deal can go through as long as it gains support from a majority of votes cast, excluding Michael Dell's nearly 16 percent stake in the company. The original bid required a majority of all outstanding stock excluding Michael Dell's stake, a provision that meant that abstentions counted as a part of the opposition.

Dell's board also changed the voting eligibility. All shareholders holding company stock as of Aug. 13 can cast ballots instead of the previous cutoff date of June 3. That creates a new pool of voters, including many investors who bought the stock in the past few months and stand to profit from the sweetened offer.

If it succeeds: Michael Dell is hoping to evolve the company into a more diversified seller of technology services, business software and high-end computers -- much the way IBM Corp. had successfully transformed itself in the 1990s. He believes he has a better chance of turning the company around in the long run if it didn't have to worry about Wall Street's quarter-to-quarter expectations.

Criticisms: Some big investors still oppose the deal. Icahn believes the offer undervalues the company's long-term prospects and gives Michael Dell and his backers an unfair opportunity to profit from a turnaround. The deal would saddle Dell with more than $15 billion in debt, which could raise doubts about its financial stability among its risk-averse corporate customers.

The status: The plan has the backing of Dell's board. Michael Dell won't be able to vote his nearly 16 percent stake in the company, so the deal will need a majority of the remaining shareholders who submit ballots. Shareholders representing at least 20 percent of the votes were known to be in opposition before the offer was raised and the special dividend was added.

CARL ICAHN/SOUTHEASTERN ASSET MANAGEMENT

Icahn and Southeastern Asset have proposed that the company buy back 1.1 billion shares at $14 each. They added another element last month that would give stockholders warrants to buy additional shares. Icahn has valued his plan at $15.50 to $18 per share. That plan calls for rewarding shareholders with some cash now, but leaving about a third of the shares outstanding for shareholders to benefit from a successful turnaround.

If it succeeds: Icahn and Southeastern want to replace the Dell board with their own slate of candidates and put their plan in effect. Icahn plans to oust Michael Dell as CEO, but hasn't said whom he has in mind to run the company. To pull off his mutiny, Icahn needs to have Dell's annual meeting held on Sept. 12, the same day that shareholders are scheduled to vote on Michael Dell's deal.

But Dell's board has scheduled the annual meeting for Oct. 17. Icahn is suing in Delaware court to force that date to be changed.

Criticisms: A special committee of Dell's board calls the plan risky and short on details. One shareholder-advisory firm, Glass, Lewis & Co., says the certainty of a cash payout under the Michael Dell plan is better than the risk in continuing to hold Dell shares.

The status: No vote has been scheduled, and it may never happen unless Icahn can prevail in court.


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