With a Month to Go Before Dell’s Buyout Vote, Eyes on Proxy Advisory Firms
June 16, 2013 at
1:21 pm PT
vote over the $24.4 billion plan to take the struggling computer company
Dell private is now only 32 days away.
Set for July 18, it may
yet be close, or it may not. Much of that will be determined by the activist
Carl Icahn walks away from the proxy fight he started as he has been
reported to be considering.
But another key step in
that process is fast approaching. The two major proxy firms, Institutional
Shareholder Services and Glass Lewis have yet to weigh in on the proposal my
CEO Michael Dell and the private equity firm Silver Lake Partners. The
opinions of those firms will carry a lot of weight among certain
institutional shareholders. A recommendation against the buyout by either
firm – ISS in particular — could sway enough shareholders that its approval
might be in doubt.
As yet neither firm has
given any indication as to its opinion of the deal. CNBC reported Friday
that meetings between representatives for Dell and Silver Lake and the proxy
firms had not yet taken place.
The proxy firm
recommendations matter in part because of the way the proxy vote will be
structured. Under terms of the buyout process established by a special
committee of Dell’s board of directors, neither Michael Dell, nor any of his
affiliates who control a combined 15 percent and change of the outstanding
shares can cast a vote. That means a majority of slightly more than 42
percent have to vote in favor.
Those against the deal so
far include Icahn and Southeastern who control a combined 12.53 percent of
the company’s shares. Others who have previously expressed opposition to the
deal include fund manager T. Rowe Price, which had 4.09 percent of Dell
shares as of March 31 and Pzena Investment Management and Yacktman Asset
Management, who control a combined 1.58 percent of shares.
One critical block of
shares belong to investment funds that are passively managed, including some
index funds and exchange traded funds (ETFs). According to data from Thomson
Reuters, more than 16 percent of Dell shares are in the hand of index funds.
In some cases these funds vote exactly as the proxy firms recommend.
According to a source
close to the process, as much as 10 percent of Dell shares are in the hands
of firms that have so-called “auto pilot” proxy policies and vote with the
advisory firms. Another five percent to 10 percent will be heavily influence
by the firms’ opinions.
The largest of these
include State Street Global Advisors, which had 3.46 percent of Dell’s
shares, and which gets some advice from ISS. Invesco’s PowerShares funds
unit get its advice from Glass Lewis.
Other firms keep their own
counsel on proxy votes and vote according to their own proxy policies. The
Vanguard Group (proxy
guidelines here) and the iShares funds controlled by the investment firm
guidelines here) are two of the the largest in this camp: Vanguard owns
3.7 percent of Dell shares while BlackRock’s funds control about 3 percent.
In looking over all this I
prepared a handful of spreadsheets. I’ll share screen grabs of two.
The first is breakdown of
the top 21 shareholders of Dell (Michael Dell, plus the next 20). Those who
have previously indicated opposition to the buyout in public statements are
highlighted in red. Remember that about 42 percent of shareholders need to
vote in favor for the buyout to be approved. (Most of these investment
stakes were current as of March 31, based on public filings, and so they
don’t account for any changes that might have occurred since then.)
The second is the top 10
index fund companies that hold Dell shares.