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Taking Back the Castle: Michael Dell, Silver Lake, and the Battle for Dell Inc.

On September 13, 2013, shareholders of the personal computer giant Dell Inc. voted to approve the proposed leveraged buyout of the company by founder Michael Dell and the private equity firm Silver Lake.1  The vote put an end to the nearly year-long saga that pitted two of the country’s wealthiest men against one another.  Although good news for Michael Dell, succeeding in the shareholder vote can hardly be considered a glorious victory.  Dell will take private a company plagued for the last decade by declining financial performance and challenges in the face of increasing competition from industry rivals such as Hewlett-Packard and International Business Machines (IBM).2

Dell first started selling computers out of his dorm room at the University of Texas-Austin in the mid-1980s; he experienced immediate success.3  In 1988, the business originally known as PC’s Limited changed its name to Dell Computer Corporation and raised $30 million by going public.4  By 1992, less than a decade after its founding, Dell Computer first appeared on the Fortune 500 and by the end of the 1990s, it was the world’s most profitable personal computer company.5

By the early 2000s, however, the company’s great success was beginning to falter.  In March 2004, Dell decided to pass day-to-day control of the company over to his right-hand man, Kevin Rollins, who became CEO, while Dell remained as Chairman.6  Soon after, Dell began to face serious problems, as PC sales began to lag behind those of competitors.7  A steady stock price of $33 per share at the beginning of Rollins’s leadership had fallen to $25 per share just three years later in February 2007, when the board of directors encouraged Rollins to resign and reinstated Michael Dell as CEO.8

Dell’s reentry as the company’s CEO, however, did not produce a grand comeback for the faltering Dell Inc. and in August 2012, the mogul initiated talks with private equity firms Silver Lake and Kohlberg Kravis Roberts & Co.9  A few months later, in mid-January 2013, rumors began to surface that Dell was planning to take the company he founded private again.10  On February 5, 2013, a special committee to the board of directors announced that it had unanimously approved a buyout by Dell and Silver Lake at $13.65 per share, for a total price of over $24 billion.11  The $13.65 price per share represented a 37% premium over the average closing price for Dell shares over the 90 days prior to January 11.12  But opposition to the buyout quickly began to brew, primarily at the hands of two minority shareholders: activist investor and fellow billionaire Carl Icahn and a mutual fund, Southeastern Asset Management, Inc.13

Opposition to the buyout plan was primarily based on some shareholders’ belief that the $13.65 per share offer greatly undervalued the company.14  Southeastern, which owned 8.5% of Dell’s shares, believed the company was worth at least $24 per share, while Pzena Investment Management, another minority shareholder, valued the company at $25 per share.15  One commentator wrote that Dell was essentially “looking to steal the company.”16  In just a few weeks time, Carl Icahn had managed to purchase a 6% share of the company with the intent of blocking the buyout.17

In a letter Icahn penned to other shareholders the week before they eventually approved the deal in early September, he outlined his reasons for opposing the buyout.18  Like others, he also claimed that Dell’s offer undervalued the company and “[froze] stockholders out of any possibility of realizing Dell’s great potential,” citing the fact that Dell’s offer was 70% below Dell Inc.’s stock price ten-year high of $42.38.19  But that high was in December 2004, right before Dell’s milk began to sour, and the stock price had been on a steady decline ever since.20  Icahn may have had a point, however, as stock price aside, Dell was highly profitable and an evaluation by Boston Consulting Group, hired by the board’s special committee, projected profits of $3 per share in 2015, a dollar more than Icahn’s own projection.21

Icahn also had another problem with Dell’s buyout offer and the way the company’s board of directors was handling the situation.22  The initial shareholder vote, originally scheduled for mid-July, was postponed by the board. This was allegedly after realizing shareholder support at around 36% fell short of the 42% needed to approve the buyout.23  In fact, the board would postpone the shareholder vote three times before it was finally held.24  Additionally, the board altered a deal term that equated shareholders’ abstention from voting to a “no” vote.25

Eventually, on September 9, 2013, four days before shareholders approved the buyout plan, Icahn announced that he would no longer oppose the buyout, but that his efforts had forced Dell to raise the amount of his offer and gave shareholders “many hundreds of millions of dollars more” than Dell’s initial offer.26.  He believes that if the board had permitted Dell Inc.’s annual meeting to take place at the same time as the special meeting for the shareholder vote, that final price might have been even higher.27  In the end, Dell paid $13.75 in cash per share, while promising to pay both a one-time cash dividend of $0.13 per share in addition to the company’s planned quarterly dividend of $0.08 on November 1.28

Dell now says that he plans to change the focus of Dell Inc. from personal computers to providing technical advice for businesses, but those who oppose him are skeptical of whether a private company could do this any better than a public one.29  It’s unclear whether this skepticism will prove to be true, but for now one thing is certain: Michael Dell is once again the king of his castle.

  1. Shira Ovide & David Benoit, Corporate News: Dell Shareholders Approve Buyout, Wall St. J. (Sept. 13, 2013), 

  2. See Ovide, supra note 1. 

  3. Michael Dell Biography, Academy Of Achievement (Feb. 5, 2013, 4:16 PM), 

  4. Biography, supra note 3. 

  5. Id. 

  6. Michelle Kessler, Dell Founder Passes Torch to New CEO, Usa Today (Mar. 5, 2004, 10:11 AM), 

  7. Damon Darlin, Dell Chief Is Replaced by Founder, N.Y. Times (Feb. 1, 2007), 

  8. Id.; Kessler, supra note 6. 

  9. Ovide, supra note 1. 

  10. Tiernan Ray, Dell Agrees to Merger in $13.65/Sh Buyout; Unaffiliated Holders Must Vote, Barron’s (Feb. 5, 2013, 10:31 AM), 

  11. Ray, supra note 10. 

  12. Id. 

  13. Andrew Bary, Why Michael Dell’s Buyout Deserves to Die, Barron’s (July 20, 2013), 

  14. Andrew Bary, The Dell Deal May Die, Barron’s (Feb. 9, 2013), 

  15. Dell Deal May Die, supra note 14. 

  16. Id. 

  17. Tiernan Ray, DELL: Icahn May Oppose LBO, Says CNBC; HPQ Interested, Says Bloomberg, Barron’s (Mar. 6, 2013, 2:27 PM), 

  18. Press Release, Securities and Exchange Commission, Carl C. Icahn Issues Open Letter to Dell Stockholders (Sept. 9, 2013), 

  19. Securities and Exchange Commission, supra note 17. 

  20. DELL Historical Prices, Yahoo! Finance, (last visited Sept. 27, 2013). 

  21. Bary, supra note 13. 

  22. Securities and Exchange Commission, supra note 17. 

  23. Bary, supra note 13. 

  24. Ovide, supra note 1. 

  25. Id. 

  26. Securities and Exchange Commission, supra note 17 

  27. Id. 

  28. Ovide, supra note 1. 

  29. Id. 

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Ethan Anderson

Vol. 3 Associate Editor
University of Michigan JD Candidate, 2015 Northeastern University BS in Economics, 2012

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