Dell Inc. reported fiscal second- quarter sales that topped analysts’ estimates ahead of a vote next month on its founder’s bid for the computer maker, lending some credence to arguments that the company could recover without a leveraged buyout.
Dell’s profits continue to suffer from the decline in personal-computer sales. Net income for the fiscal second quarter fell 72 percent to $204 million, or 12 cents a share, compared with analysts’ average $275 million estimate and $732 million, or 42 cents, a year earlier. Revenue for the quarter ended Aug. 2 was little changed from a year earlier at $14.5 billion, compared with the $14.2 billion average of analyst estimates compiled by Bloomberg.
The results, which Dell attributed to strong sales of servers and networking gear, may bolster the case of billionaire activist shareholder Carl Icahn, who is arguing in Delaware court that he should be allowed to appoint directors, in order to keep Dell public and profit from his stake. Chief Executive Officer Michael Dell and Silver Lake Management LLC are seeking to take the company private in a $24.9 billion leveraged buyout that shareholders appear ready to approve in a Sept. 12 vote at the company’s Round Rock, Texas headquarters.
“Dell exceeding expectations gives Carl Icahn a chance to come at him and continue to say what he has been saying, which is Dell is significantly undervalued at the offer that Michael Dell is proposing,” said Angelo Zino, an analyst at S&P Capital IQ who has a hold rating on the shares.
Shares of Dell were higher in extended trading after the report. The stock fell less than 1 percent to $13.71 at the close in New York, and has traded near Dell and Silver Lake’s $13.75 offer price since a special committee of Dell’s board accepted a sweetened offer by the group two weeks ago.
Dell Proposal
Profit excluding some items was 25 cents a share, compared with analysts’ average 24-cent estimate.
Dell and Silver Lake are proposing a dividend of 13 cents a share on top of an already-increased $13.75-a-share bid for the computer maker, boosting their odds of winning shareholder support for the deal. They also said shareholders would receive an 8-cent-a-share third-quarter dividend regardless of when the deal closes.
In exchange, the investors holding the stock as of Aug. 13 will be eligible to vote on the deal, and abstentions will no longer be counted as votes against the deal, a key sticking point for Dell and Silver Lake before the amended deal.
Icahn is asking a Delaware judge to bar Dell, the third- largest PC maker, from setting a new shareholder record date; to stop Michael Dell and his affiliates from voting any shares acquired since Feb. 5, the day the deal was announced; to stop the company from changing voting requirements; and to find that the board breached its fiduciary duties.
Shareholder Positions
Icahn held 156.5 million shares of Dell valued at more than $2 billion as of Aug. 1, putting his stake of the company at 8.9 percent, according to data compiled by Bloomberg. Michael Dell is the largest shareholder with 15.6 percent.
Dell’s shareholder base has shifted to a makeup that could also boost Michael Dell’s bid. Hedge-fund managers almost tripled their holdings of Dell in the second quarter, to 18 percent as of June 30 from 6.5 percent as of March 31, while traditional mutual-fund firms cut their stakes, according to holder reports filed as of yesterday with the U.S. Securities and Exchange Commission.
Dell and other PC makers are being stung by a slump in shipments, which have fallen for a fifth straight quarter. Second-quarter shipments dropped 10.9 percent to 76 million, according to market researcher Gartner Inc. Dell gets more than half its sales from desktops, laptops and related products, which are being replaced for many consumer and business uses by tablet computers including Apple Inc.’s iPad.
Dell was originally scheduled to report earnings on Aug. 20, and moved its report up yesterday because of heightened interest in the company, according to David Frink, a spokesman for the company. It issued no forecast for the third quarter, which ends in November, and won’t hold a conference call for analysts.
