Maximizing Stockholder Value Through a Go-Shop Process


In early February 2013, Dell Inc. announced that it had agreed to a $24.4 billion leveraged buyout transaction with an investment group led by the company’s founder and CEO, Michael Dell and private equity firm, Silver Lake. Under the terms of the deal, Dell stockholders would receive $13.65 in cash per share, and following completion of the transaction, the company’s shares would be delisted. The proposed transaction implies a 37% premium over the average closing share price during the 90 days ending Jan. 11, 2013, and values the company at $24.4 billion, making it the largest leveraged buyout since the financial crisis.

Following this announcement, commentators and prominent stockholders panned the deal as undervaluing the company and its prospects. Stockholders such as Southeastern Asset Management, T. Rowe Price Group, Alpine Capital Research and Schneider Capital claimed that the proposed purchase price significantly undervalued the business. Another Dell stockholder filed a class action lawsuit against the company and its board of directors seeking to block the transaction.

As part of this growing opposition, some in the media have even accused Mr. Dell of insider trading. They claim that because of Dell’s unique position with the company, he has intimate knowledge of what the company is worth and its short and long-term prospects, and much of that information is non-public. According to critics, the proposed buyout transaction represents Mr. Dell’s trading on that non-public information.

What many commentators are only recently beginning to realize is that the February announcement was simply the beginning of a process. The acquisition agreement provided that the company would undertake a “go-shop” process for 45 days. Under this process, the company has actively solicited competing offers from third parties to acquire the company. The company, represented by an independent committee of the board of directors, must then negotiate with such potential acquirors to attract an offer superior to that proposed by Mr. Dell and Silver Lake.

Early results of the go-shop process reflect that there may be at least two superior proposals — one from activist investor, Carl Icahn, and his affiliates and the other from a private equity fund managed by Blackstone. Under Icahn’s proposal, stockholders would be entitled to elect to receive either shares of the surviving company or cash at a rate of $15 per share, up to an aggregate maximum amount. Icahn’s offer allows current stockholders to remain as stockholders and indicates that a portion of the company’s shares would remain publicly traded. Meanwhile, Blackstone is offering to purchase the company’s shares in a leveraged recapitalization valuing the company at more than $14.25 per share; stockholders can choose to receive either cash or stock for their shares, subject to a maximum cap. Unlike the offer from Dell and Silver Lake, Blackstone intends for stockholders to receive shares in the company, which would continue to be publicly traded on Nasdaq. Both Icahn’s and Blackstone’s proposals indicate they are non-binding and subject to additional due diligence.

According to a March 25, 2013 Schedule 14A filed by the company, the special committee of the board of directors, after consulting with its legal and financial advisors, determined that “both proposals could reasonably be expected to result in superior proposals” and intends to continue negotiations with both parties.

While a deal to acquire Dell is far from complete, the early results of the go-shop process reflect that it is an effective means, if properly managed, to maximize stockholder value in the context of a proposed management buyout.

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