If Michael Dell’s request for the voting standard to be changed in advance of Friday’s shareholder vote was his trump card, his buyout offer could be in trouble. On Wednesday morning, the special committee of Dell’s (NASDAQ:DELL) board of directors — which was charged with overseeing the company’s go-private transaction — handed the founder and CEO a defeat in his quest to take the personal computer maker private.
“The Special Committee has carefully reviewed your letter of July 23, 2013, in which you propose to increase your offer to $13.75 from $13.65 per share subject to the Committee agreeing to change the voting standard such that non-voting shares are no longer the functional equivalent of no votes in determining the majority of disinterested shares,” the letter says. But the committee was “not prepared to accept” the buyout group’s proposal.
Instead, the committee suggested two alternatives: either Michael Dell can agree to establish a new record date for a vote on the $13.75 per share offer, meaning the shareholders who acquired their stakes after the original voting cutoff of June 3 could participate, or the vote on the original $13.65 per share offer could proceed as planned on August 2.
Of course, whether this defeat is one that changes the future course of Dell or is a small bump in the road to privatization depends on the outcome of Friday’s twice-postponed vote. Each of the previous scheduled votes were met with lower-than-expected turnout, according to Michael Dell. While it was not what he asked for, changing the record date could affect shareholder turnout.
Michael Dell was hoping the rule change would help his buyout offer for the PC manufacturer he founded succeed. In explaining the reason behind his request for the rule change, he told Bloomberg earlier this week that because it only takes “about 23 percent of the outstanding shares to block the transaction” under the current voting standard, the results of such a vote would be unfair and “not accurately reflect what the shareholders want.”
Carl Icahn and Southeastern Asset Management, whose rival bid for the company has caused much of the vote-related drama, have not yet commented on the special committee’s decision. However, they have given their thoughts on Michael Dell’s proposed rule change.
“Michael Dell and Silver Lake crossed the Rubicon by trying to take away the one provision in the merger agreement that actually provided stockholders with a voice in their company,” they wrote in a letter to shareholders about the rule change. “It is time for Michael Dell and this board to go.” In their opinion, the 10 cent increase offered by Michael Dell did not warrant a change to the required method of stockholder approval, and the special committee agreed.
“As we understand it, Michael Dell and Silver Lake would have you believe that it is somehow unfair to require an affirmative vote on their self-interested transaction by owners of a majority of the unaffiliated shares,” the challengers wrote in another letter. “However, based on the votes cast to date, this appears to be a transaction where the protection afforded by this provision is most needed.” According to Icahn and Southeastern, the overall ratio of votes for and against the go-private transaction is “roughly 50/50.” But when non-votes are included the ratio of votes cast thus far, the ratio becomes closer to 4o percent in favor and 60 percent against the deal, they said.
As for changing the record date, Icahn and Southeastern are opposed to this as well. “We do not believe you should agree to change the record date for determining stockholders entitled to vote on the Michael Dell/Silver Lake transaction in the hope of providing Michael Dell and Silver Lake with a more transaction-friendly voting base,” they wrote. “In fact, we strongly believe that you should stop postponing the vote on that transaction and allow the vote to proceed toward its proper conclusion on August 2 — the 60th calendar day following the June 3 record date.”
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