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'Agitated Shareholders' May Force Dell to Boost Buyout Bid

Wednesday, 13 Feb 2013 | 12:52 PM ET
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Michael Dell's plan to take his tech company private isn't going as smoothly as planned.

Shareholders are taking a stand against Dell's $24.4 billion leveraged buyout, claiming that the current offer of $13.65 per share is a steal for Dell, but a miss for shareholders.

"We believe the proposed buyout does not reflect the value of Dell, and we do not intend to support the offer as put forward," Brian Rogers, T. Rowe Price chief investment officer, said in a statement.

On Tuesday, T. Rowe Price joined the investment firm Southeastern Management in opposing the Dell takeover bid. Besides Michael Dell—who controls roughly 16 percent of the company's stock—the two firms are Dell's biggest shareholders, accounting for about 13 percent of Dell's shares.

(Read More: Opposition Grows to Dell's Landmark $24.4 Billion Buyout)

Pzena Investment Management—another large shareholder—also plans to oppose the deal. And on Wednesday, another shareholder, Donald Yachtman of Yachtman Asset Management, told CNBC "the price is inadequate."

Dell, though, is sticking with its current offer so far.

"...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. 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," Dell said in a statement responding to opposition from Southeastern and T.Rowe Price.

(Read More: Dell: $24.4 Billion Buyout Deal in Best Interest of Shareholders)

The growing opposition from major shareholders could be a big problem for Dell because in order for the company to go private, he needs the approval of the majority of shareholders, excluding his stake in the company.

Peter Misek, an analyst at Jefferies, said in a note Tuesday that the bid could be raised to $15 per share.

T. Rowe Price Speaks Out on Dell Buyout
T. Rowe Price is the second largest shareholder of Dell, and the company says it will not support the Dell buyout "as put forward," with the FMHR traders and Dan Niles, AlphaOne Capital Partners.

"...We believe that the bid could be raised to $15 to satisfy agitated shareholders. While many shareholders would obviously like a higher bid, we see competing offers as unlikely," Misek wrote in his note.

But shareholders' hopes for a sweetened bid may be unrealistic because Dell's PC business is just not in high demand, said Dan Niles, chief investment officer at AlphaOne Capital, on CNBC's Halftime Report Tuesday.

"If you look at the business Dell is in, they are in the PC industry and that's a huge weight. Last year was the first year PC units declined since if you go back to when the tech bubble burst. Tablets are coming in, they are taking out the low end, smartphones are coming in as well, and Dell is in a really tough spot," Niles said.

While some shareholders argue that Dell's stock will continue to go up if the company remains public because investors are realizing the value of the company, Niles said that he only sees the stock declining if shareholders refuse Dell's offer.

"If you sit there and argue the stock can go up to $20, I'd argue the stock could go down to $5 before it goes to $20," he said.

Still, Dell's shares closed at $13.79 a share on Tuesday and were trading up on Wednesday, signaling that investors anticipate a price increase.

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