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Dell Wins ISS Approval, Eyes Voting Result

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Michael Dell, owner of Dell Inc. seems to have won half the battle against business tycoon, Carl Icahn. Icahn’s proposed bid to derail Michael Dell’s LBO is losing steam with proxy shareholder advisory firm, Institutional Shareholder Services Inc. (ISS) recommending the original buyout offer.

Yesterday, Dell’s Special Committee announced the receipt of ISS’ statement recommending Dell shareholders to vote for the $24.4 billion LBO offer (which comes to $13.65 per outstanding share) from owner Michael Dell. ISS’ recommendation reflects the best interests of the shareholders.

ISS’ recommendation comes with the support of two other advisory firms, namely Glass Lewis and Egan-Jones, both of which conveyed their independent decisions based on an exhaustive review of Dell’s existing business plans and various alternatives. The decision of the advisory firms is in tandem as they believe that shareholders will benefit out of the deal and will not face the repercussions of the continuous slowdown in the PC business.

As expected, Carl Icahn and his partner Southeastern Asset Management expressed their disappointment over the ISS’ statement, asserting that their offer will be honoring the best possible interests of the shareholders.

Carl Icahn still believes that his offer to buy 1.1 billion shares at a price of $14 a share (total value of the deal being $15.4 billion) would give shareholders a good return in addition to continued earnings from a publicly-traded Dell.

Michael Dell, his LBO partner Silver Lake and the Special Committee (formed by Dell’s board of directors to oversee the matter on behalf of the shareholders) turned down Icahn’s proposal citing concerns regarding the availability of funds and possible pressure on the company’s liquidity.

 Icahn made another attempt with a promise to fund $5.2 billion (comprising two term loans) over and above $7.5 billion cash and $2.9 billion from sales of receivables. Moreover, Icahn also proposed to arrange for an additional $2.0 billion (through its associates), if necessary. The arrangement would leave enough cash with Dell to maintain liquidity and smoothly run operations, even after returning cash to shareholders.

Michael Dell and Silver Lake, however, declined to comment or express their willingness to further “sweeten” the deal (i.e. offering $14.0 per share instead of the existing $13.65 a share).

While Dell has received ISS’ approval, it still needs a majority vote to complete the buyout process. The shareholder vote, which will be the deciding factor, is scheduled on Jul 18.

There is a possibility that the shareholders might demand the higher price before they approve the deal. So the ball is in Michael Dell’s court and it will be interesting to see what he does.

Currently, Dell has a Zacks Rank #5 (Strong Sell), reflecting the pending LBO. Investors could, however, consider technology stocks like Micron Technology Inc. (MU - Snapshot Report), EMC Corp. (EMC - Analyst Report) and NetApp Inc. (NTAP - Snapshot Report), which have a Zacks Rank #2 (Buy) and are worth investing in.

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