The CEO’s agreement with the Dell board’s special committee significantly improves his chances of getting investors to approve the deal.
Michael Dell’s efforts to buy his namesake company and take it private got a significant boost Aug. 2 when he and the special committee negotiating for Dell’s board agreed on a revised deal that increases the money offered to shareholders and changing voting rules in the CEO’s favor.
Michael Dell and financial backer Silver Lake Partners are boosting the amount of their offer from $13.65 a share to $13.75, with another 13 cents per share kicking in when the deal is closed, adding another $350 million to the $24.4 billion that was initially proposed. The company also will pay investors another 8 cents per share in a third-quarter dividend.
In return, the special committee put off the vote for a third time—it was set for Aug. 2, but now is scheduled for Sept. 12—and more importantly, agreed to change the voting rules
so that only shares voted for or against the deal will be counted. Under the previous rules, any shares not voted were automatically put into the “no” column. With the number of shares not having been voted reaching as much as 25 percent—and about another 20 percent voting against the deal—it would have been difficult for Michael Dell to win approval for his proposal.
In addition, the committee changed the record date for votes to Aug. 13. Previously, only shares bought up to June 3 could vote.
Alex Mandl, chairman of the special committee, said the agreement is good for shareholders, who will see as much as $470 million more in the deal. At the same time, changing the voting rules also is a plus for investors and Michael Dell, Mandl said.
“We believe modifying the voting standard is in the best interests of Dell shareholders, both because it has enabled us to secure substantial additional value and because it provides a level playing field for the decision facing shareholders,” Mandl said in a statement
. “The original voting standard was set at a time when the decision before the shareholders was between a going-private transaction and a continuation of the status quo.
"Since then, the nature of the choice facing shareholders has changed because of the emergence of an alternative proposal by certain stockholders. In the context of the current decision, the Committee does not believe it is appropriate to count shares that have not been voted as having been voted in support of any particular alternative,” he continued.
That alternative is a counterbid by activist investor Carl Icahn, who has been working for months to scuttle what he said is a bad deal for shareholders. Icahn, who holds more than 8 percent of outstanding Dell shares, and some other major investors believe the original deal offered by Michael Dell and Silver Lake in February vastly undervalued the company.
Since then, Icahn and Southeastern Asset Management have proposed a deal that would pay $14 a share for up to 1.1 billion shares and would keep the company public. Icahn also has been highly critical of Michael Dell and the board of directors, claiming the board has unfairly pushed the CEO’s deal on shareholders and accusing Michael Dell and the board of using bad news and poor forecasts as “scare tactics” to keep the stock price of the company low.
In a statement Aug. 1, Icahn announced he had filed a lawsuit against Dell and the board
to prevent them from delaying the Aug. 2 vote and from changing any of the voting rules.
Michael Dell wants to take the company private in hopes of accelerating its restructuring. He is pushing to transform it from a PC maker to an enterprise IT solutions and services provider, reducing its exposure to a global PC market that continues to rapidly shrink. He has argued that it would be easier to pursue the difficult strategy away from the glare of Wall Street.
Icahn believes the transformation could be accomplished with the company remaining public, giving investors who have seen the price of their shares drop over the last few years a chance to profit from Dell’s hoped-for turnaround.