More than a month has passed since Dell announced its planned $24.4 billion sale to its founder, Michael S. Dell. Since then, a number of shareholders have loudly complained that the price Mr. Dell has offered for the computer company is far too low.
With the stock trading well above the $13.65 a share that Mr. Dell has offered â" $14.31 at Fridayâs close â" the billionaire may very well have to raise his offer.
But thatâs going to cost real money.
Hereâs one way of looking at it: Raising the bid by a dollar a share would cost about $1.8 billion, so getting to the $15-a-share bid that some analysts see as necessary would add about $2.3 billion to the dealâs price.
Itâs unclear who might bear the cost of providing the additional capital. Mr. Dell is rolling over the roughly 16 percent of shares that he controls, as well as providing around $750 million in money. His partner, Silver Lake, is paying about $1.4 billion.
Silver Lake is balking at adding more money to the deal, according to people briefed on thinking at the private equity firm. Silver Lakeâs contribution is the largest it has committed to a deal, and so far it has said that it will not pay more. (Of course, that could well be a negotiating strategy.)
Executives at Silver Lake also believe that Dell is trading at about 8.7 times its projected earnings before interest, depreciation, taxes and amortization, a rich multiple that it hasnât reached in years. This is at a time when analysts are estimating that the companyâs earnings will decline nearly 10 percent year after year.
The investment firm, negotiating on behalf of itself and Mr. Dell, initially bid about $11.22 a share last year, these people said, before a series of negotiations with a special committee of Dellâs board ended at $13.65.
One clear impetus to lead to a higher bid would be if a competing bid emerged. The special committee has been overseeing a âgo-shopâ process aimed at flushing out better offers, and has attracted the likes of Hewlett-Packard, Lenovo and the Blackstone Group.
But itâs unclear whether anything definitive will come from the go-shop process. H.P. and Lenovo are widely seen as taking a free look at their rivalâs books, and several people briefed on the process believe Blackstone is unlikely to bid either.
Carl C. Icahn, who privately demanded that Dellâs board issue a special dividend instead of following through on the deal, is also participating in the go-shop process. Yet, while he has looked at the companyâs electronic data files, according to a person briefed on the matter, itâs also unclear whether heâll make an offer that directors will deem acceptable.
One of the issues facing Mr. Icahn and any other potential bidder is that paying for an alternative deal is getting trickier. A bevy of banks are already arranging debt for Mr. Dell and Silver Lake: Bank of America Merrill Lynch, Barclays, Credit Suisse and the Royal Bank of Canada.
Last week, the buyout group added Citigroup as an adviser, according to people briefed on the matter, nominally preventing the firm from joining a competing bid.
Both Dell and its suitors have been waiting until Friday to begin mounting a defense of the $13.65-a-share offer. The company is expected to disclose the proxy filing for the transaction as soon as next Monday, people briefed on the matter said, and the lengthy report is expected to touch on how the current bid was reached.
As CNBC reported on Friday, the filing is expected to detail several instances of Dellâs devising internal earnings projections over the last year, only to miss them. A forecast of $5.6 billion in operating income for the current fiscal year, issued last July, may come in well below $3.7 billion, according to people briefed on the impending filing.
None of which is to say that Mr. Dell and Silver Lake wonât eventually blink and agree to raise their offer. But with a shareholder vote on the deal not likely to take place until late June at the earliest, they have plenty of time to press their case for the existing deal.