Shares of Dell are now trading above the $13.65 price that Dell has offered in a proposed $24.4 billion leveraged buyout, evidence that shareholders think the Round Rock, Texas-based vendor will end up offering them more money.
Dell's shares were trading at $13.80 Friday morning, up 9 cents. Meanwhile, Bloomberg reported Thursday that Dell executives are setting up meetings with shareholders to assess their demands and also preparing a public response to critics of the deal, citing "people with knowledge of the situation."
Dell's biggest financing partner in the buyout, Silver Lake Partners, is said to oppose a price increase but wants to gauge how much more shareholders are looking for, according to the report.
Dell's biggest investor, Southeastern Asset Management, which owns 8.5 percent of outstanding shares, has previously said it would not vote to approve the buyout and broke down businesses to explain how it believes Dell should be worth close to $24 per share.
But not everyone shares that opinion. Brian Alexander, managing director of equity research at Raymond James, wrote Thursday that shareholders shouldn't expect a sweetheart deal.
"While we continue to think the offer will be sweetened [through a combination of higher offer price and/or special dividend], we highly doubt the ultimate price exceeds $15," Alexander wrote. "We understand shareholder frustration with Dell's offer, but given where other large cap tech stocks are trading, a takeout multiple above 4.5x EV/EBITDA [earnings value/earnings before interest, taxes, depreciation and amortization] seems unlikely."
Raymond James notes that the two major shareholders to argue against the offer, Southeastern Asset Management and T. Rowe Price, only account for about 14 percent of the 42 percent required vote of nonaffiliated shareholders.
"We wouldn't be surprised to see Dell up the offer via a combination of special dividend and slightly higher purchase price. However, moving above $15 pushes the IRR [internal rate of return] down below 20 percent in our view, and this could be a deal-breaker," Alexander wrote Thursday.
A higher offer price by Dell also might cut the frustration of some employees, who currently hold stock options higher than the $13.65 offer.
In a memo to employees on the day of the buyout announcement, CEO Michael Dell explained that the move to take the company private would accelerate Dell's transformation to an enterprise solutions-based company.
Meanwhile, Dell's only comment thus far has been that it considered an array of strategic alternatives before selecting the $24.4 billion deal.
"The board concluded that the proposed all-cash transaction is in the best interests of stockholders. The transaction offers an attractive and immediate premium for stockholders and shifts the risks facing the business to the buyer group," according to Dell in an SEC filing. "In addition, and importantly, the go-shop process provides stockholders an opportunity to determine if there are alternatives that are superior to the present offer."
PUBLISHED FEB. 15, 2013