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The Boston Globe

Business

Proxy firm backs Dell buyout plan

Surprise victory for computer maker’s founder

NEW YORK — Institutional Shareholder Services, the biggest proxy advisory firm, recommended on Monday that Dell Inc. investors accept Michael S. Dell’s $24.4 billion leveraged buyout offer.

The recommendation is something of a surprise and a potentially big victory for the man who founded Dell in his college dormitory room 29 years ago. ISS is still largely considered an influential voice in corporate elections, though investors have occasionally overridden its recommendations.

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Advisers to both the buyers and to a special committee of Dell’s board had assumed that the report would probably be unfavorable to the deal, in which Michael Dell and the investment firm Silver Lake would pay $13.65 a share.

They have argued that taking the company private is a necessary step in helping it pivot from the declining business of manufacturing personal computers toward selling corporate software and services, shielded from the harsh glare of quarterly earnings reports and skeptical analysts.

The two have been fending off challenges to their offer, principally led by the billionaire Carl C. Icahn and the asset management firm Southeastern Asset Management. The two, who together own 13 percent of Dell shares compared with Michael Dell’s 16 percent stake, have argued that the company founder is trying to buy control too cheaply.

But in its report, ISS wrote that the offer represented a significant 25.5 percent premium to the company’s unaffected share price, and that it also let shareholders effectively sell the risk of turning around the company to Michael Dell and Silver Lake. “The risk may be less that he’s taking all the upside for himself than that he is trying to catch a falling knife,” ISS wrote. “From a public company shareholder’s perspective, if your CEO is willing to buy your falling knife for the privilege of catching it, there is probably a price at which you should let him.”

Shares in Dell closed up 3.11 percent on Monday, at $13.44. They had fallen on Friday amid word that Michael Dell and Silver Lake did not plan on raising their offer.

Though some investors have questioned efforts by a special committee of Dell directors to fetch the best possible price for public shareholders, ISS largely acquitted the board group.

ISS pointed to the brief emergence of the private equity giant Blackstone Group as a potential rival bidder; Blackstone walked away after having seen confidential information about the company’s business.

The only real alternative is leaving Dell publicly traded, letting shareholders bear the risk of supporting a challenging transformation.

Icahn and Southeastern have proposed making the company buy back 1.1 billion shares at $14 each, letting shareholders reap any gains if the transformation plan succeeds.

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