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7/22/2013
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Michael Dell Faces Biggest Week Of His Career

This week could alter the course of Michael Dell's legacy, as investors consider his $24.4 billion offer to take the company private.

Throughout his career, Dell CEO Michael Dell has overcome many challenges. He famously launched the company, once the world's biggest PC maker, from his college dorm room, for example. Along the way, he became one of the world's richest people.

This week, however, Michael Dell faces arguably the biggest challenge of his career. On Wednesday, Dell investors will vote whether to accept the CEO's proposal to take the company private. A full $24.4 billion hangs in the balance, along with Michael Dell's legacy and the future of the company that bears his name.

Shareholders were originally scheduled to vote on the proposal last week, but Michael Dell delayed the vote Thursday. Observers have widely inferred that Michael Dell made the move because he lacks the votes necessary to secure victory. His plan is opposed by several large investors, most notably Carl Icahn and Southeastern Asset.

Michael Dell, who owns 16% of the company's stock, will presumably spend this week rallying support. Some holdouts might be bluffing in hopes of a better offer, but Icahn and his partners hold 13% of Dell's stock, and as many as 20% of shareholder votes are reportedly known to be opposed to the buyout. To guarantee a win, Michael Dell needs a little less than 43% of outstanding votes.

[ It looks like Dell may be a winner in the stabilizing PC market. See Dell, Lenovo See Silver Lining In Stormy PC Market. ]

Should he lose, Dell faces not only the potential loss of his company, but also haggling with Silver Lake Partners, the private equity firm which would co-finance the buyout, over fees. According to a Monday report by Bloomberg, Silver Lake believes it could be due $450 million. Michael Dell and the company board reportedly intend to reimburse Silver Lake's expenses if the buyout bid fails, but do not feel additional compensation would be warranted.

Dell's proposal would pay investors $13.65 per share. The offer is better than the $13.14 price at which Dell opened Monday, but critics contend that the CEO is trying to buy the company on the cheap so he can keep future profits to himself.

Dell has been hit relatively hard by the ongoing PC slump, and the company has so far struggled to capitalize on consumer preference for mobile devices. Even so, the company has a number of assets that could lead to a long-term turnaround, including substantial investments in next-gen data center technologies, such as hyperscale servers and converged infrastructures.

Michael Dell believes that the company can better develop its PC and enterprise service businesses in private, away from quarterly earnings and impatient investors. He has the support of the company board, and shareholders might be happy to cut their losses. The stock has traded as high as $14.64 in the last year, but it has also slipped as low as $8.69.

Carl Icahn and Southeastern Asset have proposed an alternative plan in which the company will buy back 1.1 billion shares at $14 each, allowing some investors to cash out while also keeping the company partially public. The alternate proposal also includes a warrant that allows investors to purchase additional shares. Critics contend the plan will saddle Dell with too much debt, and that Icahn has offered no vision for restructuring the company.

If Michael Dell's plan is defeated, Icahn does not score an absolute victory. His plan would still need to be accepted by shareholders at the company's annual investors' meeting, which has not yet been scheduled. Icahn has said that if the buyout fails, he will lobby to replace Michael Dell as CEO, and to remove many members of the existing board.

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