Anticipating roadblocks before coming to the bargaining table
How can negotiators anticipate roadblocks at the bargaining table earlier in the bidding process? The following example attests to the necessity of thinking through the range of problems you could face in an upcoming negotiation, including threats from deal challengers and outsiders.
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Michael Dell and Silver Lake Take Dell Private
On Feb. 5, 2013, Dell CEO and founder Michael Dell and private equity firm Silver Lake launched one of the year’s top negotiation examples, making an offer of $13.65 per share to take Dell private. Dell said that removing his struggling company from the pressure of generating short-term earnings for public investors was its best hope for transformation.
Dell and Silver Lake needed to convince a majority of Dell shareholders to vote in favor of the deal on July 18.
The deal proposal launched a 45-day “go-shop” period intended to flush out other bids, but only two alternatives emerged: a $14.25 per share bid from the Blackstone Group that later was withdrawn, and a $15 per share offer for 58% of Dell from activist investor Carl Icahn which, following a protracted battle, ultimately was judged to be too risky.
In early July 2013, Dell said he and Silver Lake would not sweeten their offer. The board’s special committee urged shareholders to vote in favor of the deal, warning that Dell stock otherwise might plummet by year’s end. But the vote was canceled when it became clear the deal lacked shareholder support.
Michael Dell and Silver Lake raised their bid, but again a vote was scuttled due to lack of shareholder enthusiasm.
The board committee pressed Michael Dell to raise the bid to $14 per share. Dell and Silver Lake hashed out a potential compromise. Given that Dell had stated publicly that $13.75 was their best and final offer, they knew they would lose leverage and credibility by raising the share price—so, instead, they bumped up their special dividend to 13 cents.
The special committee accepted the new final offer—the equivalent of $13.96 per share. A majority of shareholders ultimately voted in favor of the deal in September, thus finalizing what would become one of the most famous negotiation case studies of recent years.
In a Wall Street Journal interview, Michael Dell admitted to being surprised by the difficulty of the LBO process. Yet he could have anticipated many of the roadblocks earlier in the bidding process. This attests to the necessity of thinking through the range of problems you could face in an upcoming negotiation, including threats from deal challengers.
Claim your FREE copy: Dealmaking
Discover how to boost your power at the bargaining table in this FREE special report, Dealmaking: Secrets of Successful Dealmaking in Business Negotiations, from Harvard Law School.
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Business Negotiations and Dealmaking: Giving Outsiders a Voice in Your Negotiation
Originally published in 2014.
Claim your FREE copy: Dealmaking
Discover how to boost your power at the bargaining table in this FREE special report, Dealmaking: Secrets of Successful Dealmaking in Business Negotiations, from Harvard Law School.
