Dell Future Still in Limbo; Shareholder Vote Postponed Again

By Chris Preimesberger  |  Posted 2013-07-24

Dell Future Still in Limbo; Shareholder Vote Postponed Again

July 24, 2013, was to be the day everybody connected with Dell finally found out as to whether the company would go private under the leadership of its founder or stay a public company.

Good thing nobody held their breath.

A small number of shareholders came to Round Rock, Texas, for the meeting, the day came and went, and nothing was resolved. The shareholder meeting was called slightly after 5 p.m. Central time, then it was immediately adjourned.

This was not a surprise to those in the know, because the delay procedure had been announced earlier in the day. The result: The crucial vote was postponed until next week to allow more time for the principals involved to negotitate, although they haven't been able to come to terms for six months since founder and CEO Michael Dell revealed that he thought it best to take his company private with the help of Microsoft and private equity firm Silver Lake Partners.

Shareholder Meeting Will Reconvene Aug. 2

The next step is a reconvening of the special Dell shareholder meeting Aug. 2 at 9 a.m. Central. Michael Dell and his backers have extended their deadline for the committee running the meeting to consider their new proposal, in which they increased the stock buyout price by 10 cents to $13.75 per share. The CEO also said that $13.75 is his best and final offer.

Also on July 24, Michael Dell posted an open letter to shareholders, essentially saying that he hopes they will vote for his proposal but also that he'll live with whatever voters say. Dell also proposed that no-show shareholder voters should be counted only as nonvoters, not as "no" votes, which is the way no-shows are currently counted.

Here is the text of his letter:

Dear Fellow Shareholders,

You have undoubtedly read many stories about our efforts to take Dell private. I wanted you to hear directly from me.

I believe that taking Dell private is the right thing to do for the company. We need to transform, and we need to do it quickly. The transformation is not without risks and challenges, and I believe that we can do what we need to do better as a private company than a public company.

When I came to the Dell board last August to ask if the board would consider the possibility of a going private transaction, I understood that the independent directors would control the process, and I made clear that I was ready to partner with whoever would pay the highest price. I encouraged every interested party to pay the highest price they could.

After one of the most thorough processes in history, the highest price that any of the parties was willing to pay was $13.65 per share. Although no other party has offered to pay more than $13.65 per share, Silver Lake and I have now increased our offer to $13.75 per share, an increase to public shareholders of approximately $150 million, which is our best and final offer.

I believe this offer is in the best interests of the company and our shareholders. Certain other parties have been proposing alternatives such as leveraged recapitalizations, sales of assets and other steps that I believe would be destructive to the company and that I do not and will not support.

The decision is now yours. I am at peace either way, and I will honor your decision. Our agreement requires the vote of a majority of the unaffiliated sharesyour sharesto approve the transaction. Unfortunately, our agreement also provides that shares that do not vote count as votes against the transaction.  Currently, over 25% of the unaffiliated shares have not voted. This means that even if a majority of the unaffiliated shares that vote on the transaction want to accept our offer, the will of the majority may be defeated by the shares that do not vote. I think this is clearly unfair.

When we offered to increase our bid to $13.75 per share, we also asked the Special Committee of the Board to change this unfair vote standard and allow the will of the majority of the unaffiliated shares that vote on the transaction to control the outcome. Particularly given the efforts of others to promote alternative transactions, and the ability of those parties to vote their shares when my shares do not count, it makes no sense whatsoever to skew the playing field even further by counting shares not voting as if they supported the opposition group.

If the Special Committee agrees to our increased bid of $13.75 per share, and agrees to create a fair and level playing field in which you can decide, I will look forward to your decision.


/s/ Michael S. Dell

Dell Future Still in Limbo; Shareholder Vote Postponed Again

So maverick billionaire investor Carl Icahn, trying to stop Dell's going-private bid and keep the company public, will have to be patient for another nine days.

Thanks to the July 24 action, Michael Dell now has more time to get the vote out. About 20 percent of shareholders have indicated they will vote against the proposal. In addition, 18 percent of shares hadn't voted as of this week, according to a Bloomberg report, and those are considered "no" votes. Michael Dell needs to get 42 percent of shares voting for his bid if he and private equity firm Silver Lake Partners are to buy the company he founded 29 years ago and take it private. It's easy to see that every vote is precious.

Shareholders initially were scheduled to vote on the deal June 18, but the special committee assigned by Dell's board of directors to investigate options for the company quickly adjourned the meeting. Industry observers believed committee members feared that Michael Dell's $13.65-per-share offer did not have the necessary investor support and so wanted to give him more time to talk with shareholders.

Icahn's Counterproposal

In the meantime, Icahn, who has made a counterproposal that the special committee has refused to declare superior to Michael Dell's, is continuing to urge shareholders to reject the founder's offer, saying it undervalued the company and would benefit only Michael Dell and Silver Lake at the expense of investors.

Amid reports that the special committee may postpone the vote again, Icahn sent a letter to the committee urging that the vote go ahead as scheduled.

"We think that—after six months—the time for soliciting is over," Icahn and executives with Southeastern Asset Management, which is partnering with Icahn on his counterbid, wrote in the letter distributed July 23. "Do not move election day again. This is not a banana republic."

Michael Dell wants to take the company private in hopes of accelerating its transformation from a PC maker to an enterprise IT solutions and services provider. Dell has spent billions of dollars on dozens of companies to build up its capabilities in everything from storage and networking to security, software and the cloud. Michael Dell has argued that it will be easier to speed up the transformation as a private company that doesn't have to worry about hitting quarterly financial numbers or about Wall Street analysts.

Criticism from Some Major Investors

Michael Dell's proposal has come under criticism from some major investors since it was first announced in February. Some investors, including Southeastern and T. Rowe Price, have been steadfast in their opposition. Others, like investment firms BlackRock and VanGuard Group, initially opposed the deal but since have indicated they will vote for it.

Icahn is proposing an offer that would pay $14 per share for up to 1.1 billion shares, and the option of buying more shares at $20 down the road. His proposal would keep the company public. In addition, Icahn has said that if he is successful in buying the company, Michael Dell would no longer be CEO. He has been harsh in his criticism of the CEO and the company's board of directors, calling the offer a "giveaway" to Michael Dell and Silver Lake and the special committee "unconscionable" for recommending it to shareholders.

eWEEK Senior Editor Jeff Burt contributed to this story.

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