Michael Dell, who is Dell's CEO, is hoping to evolve the company into a more diversified seller of technology services, business software and high-end computers -- much the way IBM Corp. had successfully transformed itself in the 1990s.
On Tuesday, a special committee of the company's board sent a letter to shareholders emphasizing its opposition to a rival plan by Icahn and his Southeastern Asset Management fund. Together, they own 13 percent of Dell.
The committee said Icahn could have trumped the $13.65-per-share offer from Michael Dell and his group of investors, but instead submitted a recapitalization plan that it called risky and short on details. Icahn's plan calls for rewarding shareholders with some cash now, but leaving about a third of the shares outstanding for shareholders to benefit from a successful turnaround.
In corporate elections like this, shareholders can change their vote right up to the last minute. Michael Dell's task is made more difficult by an agreement that he would not cast his shares, which represent about 16 percent of the company's stock. That means the board needs slightly more than 42 percent of Dell's outstanding stock to accept Michael Dell's offer to get the deal done.
It would have been hard to imagine the company bearing Michael Dell's name facing this situation a decade ago, when it was riding high and leading the world in PC sales.
That was before the shift in how people engage with technology. Although the company has branched out into servers, storage devices and services, it is still heavily dependent on PCs and has suffered from the rise of smartphones and tablet computers. Last week, research firm IDC said worldwide PC shipments fell 11 percent in the April-June period, compared with a year earlier. That followed a 14 percent decline in the first three months of the year, the steepest quarterly drop since IDC started keeping records in 1994.
Dell shares have never recovered from their split-adjusted peak of nearly $60 during the dot-com boom in 2000. They were at a three-year high of around $18 in February 2012, when they started sliding again in the face of weakening PC shipments. Michael Dell began talking with potential partners about a private buyout even before the shares hit a low of $8.69 in November.
Rumors of a deal sent the shares higher before the board announced the agreement with Michael Dell and other investors on Feb. 5. A four-member special committee of the Dell board recommended that shareholders take the buyout, saying that it minimized their risk and gave them an all-cash payment at a premium over the share price before news of a possible deal leaked.
The committee said that it had wrangled six price increases from the group and that despite contacting dozens of other potential buyers, no superior offers emerged. One possible buyer, private equity firm Blackstone Group LP, dropped out in April, citing Dell's "rapidly eroding financial profile."
Icahn and Southeastern Asset Management have said that the buyout offer undervalues Dell, an opinion that has been echoed publicly by at least four more of Dell's top 20 shareholders. Icahn has proposed that the company buy back 1.1 billion shares at $14 each and added another element last week that will give stockholders warrants to buy additional shares. He has valued his plan at $15.50 to $18 per share.
If Icahn and Southeastern succeed in defeating the private-buyout offer, they would seek to replace the Dell board with their own slate of candidates and put their plan in effect. Icahn plans to oust Michael Dell as CEO, but hasn't said whom he has in mind to run the company.
Michael Dell's group got a boost when that offer was endorsed by three big shareholder-advising firms.
One of them, Glass, Lewis & Co., said it sympathized with those who believe the buyout offer was too low, "especially considering that many of the unhappy shareholders are long-term investors in Dell who likely purchased the stock at higher average prices" than $13.65. Still, the firm said, the certainty of a cash payout was better than the risk in continuing to hold Dell shares, which it said would fall "significantly" if the buyout is rejected -- maybe by nearly half.
Dell's stock was trading at $12.81 midday Wednesday, below the $13.65 offered in the buyout. That's an indication that investors weren't holding out for a higher bid. Some analysts fear the stock will sink below $9 again if the deal with Michael Dell falls apart.