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The Deal: ISS Backs Dell's LBO

NEW YORK ( The Deal) - Michael Dell and Silver Lake Partners LP notched up a big win in their struggle with Carl Icahn to take PC maker Dell (DELL) private, as proxy advisory Institutional Shareholder Services recommended Monday, July 8, in favor of the founder and private equity firm's $24.4 billion offer for the company.

In its announcement, ISS acknowledged that the offer "transfers the risk of the deteriorating PC business and the company's on-going business transformation to the buyout group."
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News of the proxy firm's decision circulated early Monday morning, causing Round Rock, Texas-based Dell shares to rise nearly three percent in pre-market trading to about $13.38. The stock is still lingering at a discount to Michael Dell's and Silver Lake's $13.65 per-share offer, however.

The proxy solicitor's recommendation of the buyout is a substantial advance for Michael Dell, whose battle for his own company took on headwinds in recent weeks as activist investor Carl Icahn appeared committed to take a competing bid to the deal's July 18 vote date.

Reports recently emerged that Dell's special committee evaluating the deal was privately nudging the founder to once again increase his bid, even though Icahn seemed to be struggling to secure outside debt financing. The corporate raider also publicly called upon the buyout group to raise its offer to close the deal.

The Michael Dell/Silver Lake camp leaked the news they would not raise their bid, temporarily spooking investors late last week. The ISS recommendation for the deal at the $13.65 per share price tag should result in shareholders voting for Michael Dell's offer and rejecting Icahn's recap proposal.

Inaccurate reports speculating that ISS would go against the management buyout hit Dell stock hard Friday, sending shares to a low they had not seen since January of this year; shares fell more than two percent, to about $13.03. That was even lower than the stock had traded after Blackstone announced in April it would walk away from a potential bid and criticized the PC maker's business.
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With ISS' recommendation, as well as that of the special committee, both Michael Dell and Silver Lake are well positioned for the July 18 deal vote. But they won't walk away with nothing, even if shareholders still reject the deal: the buyout team would be entitled to a breakup fee of at least $180 million.

Dell's special committee evaluating the deal, which has also approved the transaction and has struggled with Icahn's public attacks and criticism, signaled approval of the ISS thumbs-up and said: "We also believe rejection of this transaction would expose Dell and its shareholders to serious risks and uncertainties that will harm the company's business and erode shareholder value."

Written by Jonathan Marino

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