T. Rowe and other shareholders’ opposition won’t dramatically alter the Dell buyout math

Quartz

Mutual fund manager T. Rowe Price took the unusual step today of publicizing its opposition to a $24.4 billion buyout of Dell, adding to the growing number of shareholders who stand against the deal.

Last week, Dell announced that chief executive Michael Dell, private equity firm Silver Lake and Microsoft agreed to take the PC maker private for $13.65 a share. Dell the man is the company’s largest shareholder and will have a majority stake in the company if the deal goes through.

Just a few days later on Friday, Dell’s largest outside shareholder, Southeastern Asset Management sent a letter to Dell’s board of directors notifying them of Southeastern opposition to the buyout. The asset manager argued that Dell was worth $24 a share and vowed to fight the deal through litigation or other means.

Dell’s shares were trading around $13.78 today after the news of T. Rowe’s opposition was made public, showing investors see the possibility of a slight bump in Dell’s offer price given the growing shareholder votes against the deal. T. Rowe is Dell’s second-largest outside shareholder. Together, it and Southeastern own about 13% of the company.

It’s rare for non-activist, large investors like T. Rowe and Southeastern to go public with their opposition to an acquisition. They usually prefer to work behind the scenes, and their open statements about Dell show how upset they are about the deal’s price.

But it remains to be seen how Dell’s buyers will react since there likely won’t be any other offers for Dell and they won’t want to bid against themselves. As part of the deal, Dell has 45 days to solicit other offers but that is largely seen as more for show since Dell’s size makes it difficult to attract other suitors.

In past situations when a deal has faced opposition from shareholders, investors usually knew that there could be other buyers. In 2011, the NYSE considered offering investors a special dividend to persuade them to vote for the exchange’s merger with Deutsche Boerse in light of a competing proposal to the German exchange by Nasdaq. Both offers ran into antitrust hurdles and collapsed.

In one of the more extreme cases in 2010, investors including Carl Icahn balked at private equity firm Blackstone Group’s proposed purchase of utility company Dynegy. Icahn ended up putting in his own offer for Dynegy, but that also faced opposition and Icahn eventually ended his pursuit. No deals happened, and Dynegy went into a further downward spiral with the CEO and several board members resigning.

For Dell, the buyers have to take vocal criticism of the deal seriously since Michael Dell won’t be able to participate in the shareholder vote. That’s for governance reasons because Michael Dell, who owns about 16% of the company, has a conflicting interest in the vote’s outcome.

But given the likely lack of other offers, investors have shown so far that they expect only a modest bump at best. And without another deal in the offing, it may be hard for Southeastern and T Rowe to convince other investors to walk away, especially if there’s any kind of price jump.



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