Nearing the climax of a months-long battle over whether to take Dell private, founder Michael Dell is pulling out all the stops, upping his offer and pushing for a rule change for how the board counts votes.
Dell — who is also the chairman, CEO, and largest shareholder at the company — has offered to buy his fellow shareholders out at $13.75 a share, or $24.6 billion, which is the largest leveraged buy-out proposal since the financial crisis started picking up steam in 2007.
The rapidly intensifying showdown is taking place against a backdrop of an existential dilemma for the company. While still one of the largest PC makers in the world, the company has struggled to remain relevant in the tablet and smartphone era. As Michael Dell, whose buyout group includes private equity firm Silver Lake, stated in an SEC filing: "Dell's transformation is necessary to navigate a rapidly changing landscape," and overhauling a company is "more challenging" when it has to answer to shareholders who want a steady drumbeat of profits every quarter.
But for months now, activist investor Carl Icahn, the second-largest shareholder along with Southeastern Asset Management, has been a huge roadblock, condemning the plan, presenting alternative, more expensive deals, and Tweeting things like:
All would be swell at Dell if Michael and the board bid farewell.
— Carl Icahn (@Carl_C_Icahn) July 24, 2013
So far, Icahn's campaign has proved successful. When it came time for shareholders to cast their votes on Dell's proposal at a special meeting in Texas last week, Dell adjourned the meeting before it could begin, implying his faction simply didn't have the votes.
On Wednesday, Dell lobbed his final pitch. First, the buyout group upped its bid by 10 cents a share, which Dell is calling his "best and final proposal." In an open letter to shareholders he wrote, "The decision is now yours. I am at peace either way and I will honor your decision."
But that wasn't all: Dell's group also proposed that the company make a last-minute change to how it counts shareholder votes, leaving abstentions off the tally instead of counting them as "no's" as they do now. At the meeting last week, a full 27 percent of shareholders did not show to cast their votes. "The presumption that [nonvoting] shares should be treated as if they had voted against the transaction is patently unfair," the buyout group said.
Carl Icahn could not agree less. In a letter to shareholders Wednesday, he wrote:
The Merger Agreement and the Proxy Statement established the rules. We and other stockholders have spent time and money understanding the rules created by Michael Dell, Silver Lake and Dell, and we have played by them. To change the rules at the last minute is outrageous. [The Wall Street Journal]
Now, a special committee is demanding that Dell bump his offer to $14 a share for it to even consider changing voting requirements.
Dell will have to work quickly; the postponed vote is scheduled for August 2. Here's Steven Davidoff from The New York Times:
No doubt the parties will haggle over whether the bid should be increased by 10 cents or 35 cents a share. But just as big an issue is how the Dell board treats the record date and the majority voting condition. It all means that deliberate consideration and a thorough review of the choices here is probably prudent.
Unfortunately, there isn’t much time. [The New York Times]
And even if the rule change comes through, there's no guarantee it will swing the deal in Dell's favor. Here's Ronald Barusch at the Journal:
[T]he easier voting standard may not solve anything. It is not clear that the buyout has enough support among shareholders to pass even with the more liberal threshold. And if it doesn’t, then Dell will immediately head into another proxy fight in which Icahn and Southeastern seek to replace the board. [The Wall Street Journal]