Icahn Sues Dell to Stop Changes to Voting Rules

The investor is looking to keep the company from revising the rules around Michael Dell’s troubled bid to buy the PC maker.

The battle over Dell's future, which has been waged through the media and in meetings with shareholders, is moving into the courts after billionaire investor Carl Icahn sued the company to prevent it from changing the conditions of CEO Michael Dell's $24.4 billion bid to buy the PC maker.

In a statement released Aug. 1, Icahn, who over the past couple of months has worked to spike the deal, said he filed a lawsuit in the Court of Chancery in Delaware to stop Dell from changing the record date for voting on the deal and to stop Michael Dell and any of his affiliates from voting any shares they've acquired since the deal was announced Feb. 5.

At the same time, Icahn wants to prevent the special committee assigned by the Dell board of directors to handle the proposal from changing the voting rules—as Michael Dell has asked—and for the court to rule that the board breached its fiduciary duties by adjourning the July 24 vote without scheduling an annual meeting at the same time.

He also is suing for damages for any financial losses caused by the company and the board.

All this comes less than 24 hours before shareholders are scheduled to vote on the bid by Michael Dell and financial backer Silver Lake Partners to buy the world's third-largest PC maker and take it private. It also comes as the special committee waits to hear back from the CEO on an offer to delay the vote for a third time.

The situation surrounding the proposal has become increasingly fluid as the shareholder voting deadline has neared.

Michael Dell wants to take his namesake company private, arguing it will make it easier for him and other executives to continue its transformation from a PC maker to an enterprise IT solutions and services provider. That transformation is seen by Michael Dell and analysts as crucial to the company's long-term future, enabling it to lessen its reliance on a commoditized and shrinking global PC market.

In February, Michael Dell and Silver Lake announced an offer of $13.65 per share, a price that several large shareholders quickly claimed greatly undervalued the company and said they would vote against.

Over the following months, the CEO has been lobbying investors to accept the bid, while Icahn—the largest outside shareholder—and investor Southeastern Asset Management pulled together a counterbid that included buying 1.1 billion shares for $14 each and keeping the company public.

In the past few weeks, it's become clear that Michael Dell and Silver Lake were not going to be able to get the 42 percent of shares needed on their side to get the deal approved. The vote initially was scheduled for July 18, then was postponed to July 24. It was delayed again after Michael Dell offered a new proposal of $13.75 a share if the special committee agreed to change the voting rules that said that any share not voted automatically would go into the "no" column.

Michael Dell argued that with as many as 25 percent of the shares not having been voted and counted as "no" votes, the result could be that a minority of shareholders could block the deal even if most votes were cast for it.

The special committee July 30 rejected the idea of changing the voting rules, but said that if Michael Dell kept the $13.75-per-share price, it would postpone the vote again. In addition, the committee said it would open up the vote to anyone who bought shares as of an unset date in early August. Right now, only shares bought before June 3 can vote. It could bring in more shareholders who would vote for the deal.

Michael Dell has yet to publically say whether he would accept that, though a source told Bloomberg that he and Silver Lake were unlikely to accept it, instead keeping the bid at $13.65 per share. However, three unnamed sources told Reuters that some of the largest shareholders that have not voted on the earlier price would back the deal at $13.75 per share.

Icahn is hoping his lawsuit will scuttle any attempts to change the voting rules or eligibility guidelines.