ISS unexpectedly endorses Dell LBO

Dell Inc. investors should accept founder Michael Dell's $24.4 billion leveraged buyout plan for the company, Institutional Shareholder Services Inc. said in a surprise endorsement of the deal.

ISS, the biggest shareholder advisory firm, cited a 25.5% premium to Dell's unaffected share price, the certainty of value provided by an all-cash offer and the transfer of risk given Dell's deteriorating PC business among reasons for supporting the bid. Mr. Dell, CEO of the company, proposed to repurchase company shares at $13.65 each with partner Silver Lake Management.

ISS' influential recommendation could sway the final outcome because institutional investors look to ISS' findings for guidance on how to vote their shares. It also lessens pressure on Mr. Dell to sweeten his offer. He is contributing his 16% ownership in the company at $13.36 apiece compared to the $13.65 offered to other shareholders and another $750 million in cash.

The stock closed at $13.44 in New York on July 8.

“The issue facing Dell shareholders at this meeting has been framed in some media commentary as a choice between the sale to Michael Dell and Silver Lake Partners, or the leveraged recapitalization proposed by Icahn and SAM. It is not,” ISS said in its report Monday, referring to Carl Icahn's efforts to counter Mr. Dell's offer. “The alternative to accepting the buyout offer is to continue holding equity in a publicly traded Dell, with continued exposure to the risks and rewards of ownership.”

Mr. Icahn, teamed with Dell shareholder Southeastern Asset Management, has pressed Dell to buy back about 1.1 billion shares at $14 apiece, while leaving the remainder of the company public. Mr. Icahn has said Dell has a brighter future ahead and current shareholders should have the chance to participate in a turnaround.

As recently as last week, ISS was leaning against recommending Dell's offer, people familiar with the matter said at the time.

Dell shareholders are scheduled to vote July 18 on the LBO. Mr. Dell has said taking the company private will let him rebuild it as a supplier of data-center equipment and software to reduce reliance on the flagging personal-computer market after years of lackluster growth.