Dell Buyout: Voting Rule Changes Likely Benefit Dell

It took but one day for Dell (DELL) founder Michael Dell to turn what looked like near certain defeat of his $13.75 equity buyout bid for the company into a likely win.

On Aug. 2, Dell and the Special Committee assigned to oversee the best deal possible for shareholders, hammered out a trade in which the founder and Silver Lake Partners added a 13-cent special dividend to their offer in exchange for changing the voting rules, a rescheduled voting date and an alteration in voting eligibility.

Specifically, the grand bargain will allow abstaining votes not to be counted as “no” votes, as under the prior voting guidelines, the voting day will be moved for a third time, this time to Sept. 12, and shareholders of record as of Aug. 13 will be entitled to vote. This last, easily dismissed point, may be more important than it first appears because it could allow Michael Dell to pick up additional votes from late-arriving investors looking to snag per-share gains should the buyout go through.

In addition, the agreement guarantees shareholders a Q3 dividend of 8 cents per share. The special dividend will be funded by Michael Dell rolling over his shares at a price lower than the $13.75 deal offer. Added up, the deal now is valued at some $24.8 billion.

Special Committee head Alex Mandl said, in a statement, the transaction “provides as much as $470 million of increased value, including the next quarterly dividend that will now be paid regardless of when the transaction closes.”

In response, activist investor Carl Icahn said, in an SEC filing last Friday, the “war is far from over,” calling the bumped up Michael Dell bid “an insult to shareholders.” In the filing, Icahn added, “And promising shareholders an additional 8-cent dividend that we were already entitled to, and pretending that it is some sort of gift, is a further slap in the face.”

Last Thursday, Icahn filed a lawsuit in Delaware to force the shareholder vote to take place as scheduled the following day, a legal action that obviously has lost some steam in the aftermath of the Special Committee’s deal with Michael Dell. However, the suit demands that if a new voting date is set, it must coincide with Dell’s annual meeting, as Icahn has long lobbied, because it simultaneously enables him to put his candidates for the board up for a vote.

“We also continue to believe that the Special Committee is improperly putting its thumb on the scales in favor of Mr. Dell’s offer by changing the voting rules midstream and by refusing to hold the Special Meeting and the Annual Meeting on the same date and time — the only mechanism that would give shareholders a true choice. As such, we will continue to vigorously pursue our lawsuit in the Delaware Court of Chancery,” he said.

Separately, Dell said it will hold its next shareholder meeting on Oct. 17, 2013, more than a month after the scheduled vote on Michael Dell’s buyout bid. Stockholders of record as of Sept. 10, 2013 will be eligible to vote at the meeting.