Arbs hold key to Dell LBO

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When news of Dell's negotiations to go private leaked in mid-January, about 10 percent of the stock outstanding was said to be held by risk arbitrageurs. Since then, however, it seems that the arbs have boosted their position. A Bernstein Research analyst says the figure may now be closer to 20 percent.

Does this bode well for the current deal? It's hard to call.

Some say that the arbs are looking for incremental gains and are likely to support the deal proposed by Dell management. But it wouldn't be surprising if they were to hold out for a richer deal if they get the sense that activist shareholders are making headway in their battle to somehow spark a better deal. As of now, you would have to favor management still.

But if Southeastern Asset Management can successfully make its case against the buyout, the dynamics of the game could easily change. Risk arbs would then be more than willing to hold out for bigger gains.

So a lot is riding on events that will play out over the next several weeks. Management has taken pains to defend its deal, and is not going to change its mind now. The go-shop period, which lasts 45 days, is now in effect, and it's possible but not likely that a higher bid will emerge. The best hope for a groundswell of opposition to materialize may rest with the top proxy advisory services and whether they recommend shareholders vote for the deal---or not.

For more:
- here's an article on the risk arb angle from TheDeal
- here's an article from the Washington Post on management's position
- here's Dell's latest filing

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