Dell Incorporated and a group led by founder and Chief Executive Michael Dell reached a new deal on Friday that dramatically increases the chances of a $24.8bn buyout going through.
The new agreement includes a special dividend of 13 cents per share along with an offer increased by 10 cents per share to $13.75 per share, Dell's special board committee, set up to ensure shareholders are getting the best deal, said in a statement.
Reuters reported on Friday, that Dell shares were up by about five per cent at $13.61 in early Friday trading.
A vote on the buyout, held under a the new standard, has been rescheduled for September 12, while the record date, which determines which shareholders are entitled to vote, will be reset to August 13 from June 3.
The new deal and delay in the voting date boost the buyout consortium in several ways.
Abstentions under the previous voting system counted as "no" votes, and with an estimated quarter of eligible shares not having been voted either way, that was a substantial hurdle to overcome. Under the new deal, shares that are not voted will be excluded from the tally.
As with the previous deal, Michael Dell, who has a 15.7 per cent stake in the company, will be excluded from the vote and his shares not counted in the tally.
A change in the record date by more than two months is also seen as enfranchising so-called arbitrage investors – hedge funds that bought Dell stock more recently to earn a few cents per share and would likely support the buyout.
Under the deal, Dell shareholders will also be entitled to three regular quarterly dividends of 8 cents per share totaling 24 cents, since the first deal with Michael Dell and private equity partner Silver Lake was announced on February 5.
The special dividend of 13 cents per share will be funded with excess equity resulting from Michael Dell's rolling over his shares in the deal at a lower price, subsidizing Silver Lake's returns, according to a person familiar with the matter.
He had previously agreed to roll over his shares at $13.36 per share, lower than the $13.65 per share original buyout offer.
Together with the 10 cent per share increase in the buyout offer, this results in an increase in the original $24.4bn bid by about $350m.
"If you have to go through these machinations to get these things through, it frankly is an excellent demonstration of why management buyouts are so problematic," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
