Dell’s road to privatization got easier as billionaire investor Carl Icahn reportedly withdrew from the takeover fight with Michael Dell, founder of Dell, and Silver Lake Management. Dell's proposed buyout will be up for shareholders’ vote on Sep 12.
Earlier, Carl Icahn had challenged the leveraged buyout of Dell (buyout price per share of $13.65) and made a counter offer to buy back 1.1 billion shares at $14.00 per share that would give the shareholders a good return in addition to continued earnings from a publicly-traded Dell.
According to Icahn’s proposal, shareholders would have been allowed to sell almost 72.0% of the total shares held, while the rest would remain with the company. Icahn asserted that shareholders would benefit from a good return on investment and at the same time would continue to earn from the shares remaining with the company.
These actions prompted Michael Dell and his associates to increase the buyout price to $13.75 and agree to pay a special dividend of 13 cents per share. Now, with Carl Icahn out of the way, it seems certain that Dell’s majority shareholders will vote for the final offer from the company’s founder.
Dell has been bearing the brunt of the PC market slowdown and its sales have been cannibalized by hybrid tablets from Apple (AAPL - Analyst Report) and Samsung. This prompted Dell to make business transitions to cloud-based services and data center market. The latest report from Gartner suggests that Dell’s server business did rather well in the second quarter of 2013.
Although Dell remained in the third position, behind International Business Machines (IBM - Analyst Report) and Hewlett Packard (HPQ - Analyst Report) , Dell’s revenues from servers increased approximately 11.0% on a year-over-year basis compared to significant declines at both IBM and H-P. Moreover, its market share increased from 15.4% in the second quarter of 2012 to 17.7% in the second quarter of 2013.
These stats are encouraging, but given that Dell’s beginning in the multi-billion dollar cloud market has been shaky, a lot of work remains to be done. Gaining traction in these markets is expected to be difficult due to the presence of other providers such as Salesforce and Oracle.
So Michael Dell’s privatization bid to take the company away from public scrutiny and converting it into an enterprise computing services provider would likely be beneficial for the company in the long run.
Currently, Dell has a Zacks Rank #3 (Hold).