Dell Buyout: Voting Rules Change Rejected, Icahn Calls for Vote

Somewhere billionaire activist investor Carl Icahn is smiling. Dell’s (DELL) Special Committee today dealt a serious blow to founder Michael Dell’s and Silver Lake’s latest $13.75 per-share offer, rejecting the contingency clause not to count abstaining votes.

As the rules stand now, Michael Dell’s and Silver Lake’s bid must be approved by a majority of all shares, excluding the 16 percent stake held by Dell himself. Last week, Dell and Silver Lake upped their offer by 10 cents a share if the Special Committee agreed to base the vote on a majority of shares actually voting. In the latest vote count, some 27 percent of shares abstained from voting, meaning they would count as no votes under the current rules.

In rejecting Dell’s and Silver Lake’s offer, Special Committee head Alex Mandl proposed, as an alternative, to push back the record date for the vote at the $13.75 per share price: 

“The Committee is not prepared to accept your proposal. We are, however, willing to establish a new record date for a vote on a $13.75 per share transaction under the existing voting standard. A new record date would enable the many shareholders who bought their shares after June 3, 2013, to vote on the transaction while giving all shareholders more time to reflect on where their best interests lie in light of the improved offer.”

The record date is the marker by which stockholders must own Dell shares to be eligible to vote on the buyout bid. Reuters reported, citing a knowledgeable source, the Special Committee would consider moving the record date to Aug. 10, with a new vote held Sept. 10. The change would allow more recent shareholders to vote on the proposal, which, already twice-postponed, currently is scheduled for Friday, Aug. 2.

It’s difficult to predict Dell’s and Silver Lake’s next move. A Bloomberg report citing people familiar with the matter suggests the duo is unlikely to stay with the $13.75 bid, despite chatter that the Special Committee is said to believe extending the voting eligibility date could sway the deal in Dell’s and Silver Lake’s direction.

Icahn took his time to respond to the Special Committee’s decision but late Wednesday he filed an open letter with the SEC to Dell shareholders and the Special Committee in which he called for an immediate vote. He wrote:

“We are pleased to see that the Special Committee heeded our advice.

But now, the Special Committee has proposed to change the record date for the special meeting of stockholders, which would further delay the stockholder vote that was first scheduled for July 18. To that proposal, we say: Enough! The stockholders have spoken – and they do not want to be frozen out by Michael Dell/Silver Lake. Let the vote happen on Friday. Michael Dell has said he is “at peace either way”. We are glad to hear it! It is time to let the proposed freeze-out merger die.

If the Special Committee fails to heed our advice to hold the Special Meeting on Friday and let the stockholders finally vote after six months of uncertainty, and instead, they decide to reset the record date and schedule the Special Meeting for the fourth time, it is imperative, AS WE HAVE REQUESTED FOR MONTHS, that Dell also hold the Annual Meeting on that same day and at the same time.”

Indeed, if the buyout vote again is postponed, it’s possible that Icahn’s request to schedule the vote at the same time as Dell’s annual shareholders’ meeting—when his list of new directors also would be presented for an up or down vote—will come into play.

In an open letter to the Special Committee July 29, Icahn wrote, “If Dell wants to continue to delay the vote on the Michael Dell/Silver Lake freeze-out merger, then Dell should hold the Annual Meeting of stockholders at the same time as the vote on the merger. In that way, Dell stockholders would be given the choice to support the Michael Dell/Silver Lake transaction, or to instead vote for our slate of directors.”

And, to further complicate matters, Dell is on record as telling the Special Committee that a change in the voting record date will not alter the outcome without modifying the rules as he requested.