Dell Committee Rejects CEO's Request to Change Voting Rules
The special committee overseeing Dell’s future has rejected CEO Michael Dell’s request to change the voting rules for his $24.6 billion bid for the company, a damaging blow to his desire to buy the namesake firm and take it private.
However, in a letter sent to Michael Dell and private equity firm Silver Lake Partners July 30, the committee did offer to delay the shareholder vote again to give them more time to try to pull together the necessary support for the offer.
The caveat is that, if the committee was to delay the vote, it would be on the revised bid of $13.75 per share that Michael Dell and Silver Lake offered last week. Otherwise, the committee will go ahead with the scheduled vote Aug. 2 on the original proposal of $13.65 per share.
Michael Dell has yet to respond to the committee’s letter.
The CEO’s efforts to buy the company he founded 29 years ago and take it private has been under fire since it was announced in February. A number of large shareholders have promised to vote against it, saying it undervalued the company and would benefit Michael Dell and Silver Lake at the expense of investors. In addition, activist investor Carl Icahn, who now is the largest outside investor in the company, and shareholder Southeastern Asset Management have offered an alternative proposal that includes buying up to 1.1 billion shares for $14 each and keeping the company public.
Michael Dell has argued that taking the company private is the best way to accelerate its transformation from primarily a PC maker to an enterprise IT solutions and services vendor. The company has been impacted by the contracting global PC market, and Michael Dell said that by going private, he and Silver Lake take on the risks associated with remaking Dell while investors receive a premium for their shares.
The shareholder vote on their offer has been put off twice since July 18, with Michael Dell most recently offering what he said is his final offer to raise the bid to $13.75 a share in exchange for a change in the voting rules. As the July 24 vote approached, it was widely believed that the CEO did not have the necessary 42 percent of outstanding shares being voted in his favor.
A problem for him was in the voting rules, which read that any shares not voting were automatically put into the “no” column. The number of shares against his proposal make up about 20 percent, which means that Michael Dell and Silver Lake need all the votes they can get to his the 42 percent mark. However, the CEO has noted that there are a higher number of shares that have not voted than was expected.
In a letter to the special committee July 24, he asked that the voting rules be changed so that unvoted shares not automatically be voted as “no” votes.
“Currently, over 25 percent of the unaffiliated shares have not voted,” Michael Dell wrote. “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.”
Over the past week, Icahn has blasted both Michael Dell and the special committee, pointing out that the terms of the vote were negotiated between the CEO and committee as part of the proposal, and that changing the terms of the deal so close to the vote would be unfair. He said the company was not a “banana republic” and that Michael Dell’s request should be rejected.
It’s unclear how this will unfold. An anonymous source told Reuters July 31 that the Michael Dell-Silver Lake group does not believe it can win a shareholder vote without the voting rules change, and that extending the time before the vote would not make up for not changing those rules.
In a letter July 24 to shareholders, Michael Dell said that “the decision is now yours. I am at peace either way and I will honor your decision.” He later told the Wall Street Journal that he plans to stay on with the company even if shareholders reject his offer and Dell remains public. Icahn has said that if he were to gain control over Dell, that Michael Dell would not remain as CEO and that a new board of directors would be elected.