THE WALL STREET JOURNAL.
DEALS & DEAL MAKERS
| Updated July 24, 2013, 7:28 p.m. ET
Dell Buyout Group Calls for
Change in Voting Requirements
New Offer Requires Abstentions,
Which Currently Count as 'No's,' Not to Count at All in Tally
It might be a
soap opera or a thriller, but the Dell plot has a new twist: hours
before a vote on the Dell buyout, there's a new offer. David Benoit
joins MoneyBeat. Photo: Dell.
By SHARON TERLEP
The group trying to take
Dell Inc. private is pressing the company to change how it counts
shareholder votes to improve the odds of its buyout winning approval, and
has offered to increase its bid by less than 1% as an incentive.
Michael Dell, chairman and chief executive
officer of Dell Inc.
The move to renegotiate the vote rules midstream comes as the buyout group,
Michael Dell and private-equity firm Silver Lake, have all but concluded
they can't overcome entrenched opposition to their proposed $13.65-a-share
offer from investor
Carl Icahn and others unless the voting structure on the deal is
adjusted, said one person familiar with their thinking.
In a letter revealed Wednesday,
Mr. Dell and Silver Lake proposed that abstentions—which currently count as
"no's"—don't count at all in the tally on their bid.
Dell's special board committee
that negotiated the buyout said Wednesday that it is evaluating the offer,
which also calls for raising the bid by 10 cents to $13.75 a share if the
vote change is accepted.
The company Wednesday postponed
for a second time, now until Aug. 2, a shareholder vote that had been
scheduled on the bid. The first delay, last week, came after the original
$24.4 billion buyout offer didn't appear to garner enough shareholder
support to succeed.
Shares rose 3 cents to close at
Mr. Dell made a personal plea in
an open letter to shareholders late Wednesday, calling the revised offer in
the best interests of the company and its shareholders. "The decision is now
yours. I am at peace either way and I will honor your decision," he said.
The vote count issue stems from a
concern at the root of the deal and some shareholder discontent with it: Mr.
Dell's conflict in the transaction, as both buyer of investors' shares and a
fiduciary of the company.
Mr. Dell is the company's
founder, chairman, chief executive and its largest shareholder. To
neutralize his influence in the sale process in an effort to make it fair to
other shareholders, the company and buyout group agreed to certain terms in
the voting process that are now proving too burdensome for the buyout group
Under the agreement, the 16% of
shares Mr. Dell controls don't count toward the vote, and non-votes count as
"no's." Wednesday, the buyout group said 27% of eligible shares hadn't been
voted; that amount combined with declared no's adds up to around 49% of
shares that count in the buyout vote.
"The presumption that [nonvoting]
shares should be treated as if they had voted against the transaction is
patently unfair," the group said.
Heading into last week's
scheduled shareholder meeting, the buyout group anticipated 10% to 15% of
eligible voters wouldn't cast a ballot, rather than the 27% who ultimately
didn't show, said one person familiar with the group.
"On Thursday morning, we were
literally sitting there asking, 'Where are the votes?'" the person said.
After that, the buyout group made
a big push to understand the makeup of those who didn't vote. The group
feels confident that many of those who failed to vote aren't likely to
oppose the offer, the person said. A number of the nonvoters, for instance,
are investment firms that have policies against voting on corporate matters,
the person said. Others were shareholders at the date counted for vote
purposes but who no longer own shares.
Still, there is a risk that the
turnout isn't the issue and they won't win the day unless they bump up their
People familiar with the deal
described the issue over the vote count as difficult. On the one hand,
changing the vote rules could look bad, raise questions about the process
and invite shareholder lawsuits. At the same time, there are legitimate
questions about how abstentions were shaping the tally, they said.
One person who works at an
institutional investor that owns Dell shares said the revised offer means
special committee members "are in a very tough position." The board panel
may get sued if it stops counting non-votes as "no" votes, or it may get
sued if it rejects the extra 10 cents a share, the investor representative
Lawyers not involved in the deal
say the original structure would be fairly standard for a buyout by
management; however, they also said there were enough protections in the
deal for shareholders that the abstentions provision wasn't critical.
Richard Pzena, head of Pzena
Investment Management LLC, the No. 20 shareholder in Dell as of the most
recent data available, criticized the revised offer Wednesday and the
board's handling of the situation.
"I can't believe 10 cents is
worth changing the terms," Mr. Pzena said. "Obviously [Mr. Dell] can't win
so he is trying to change the rules."
Danny Finocchiaro, a 29-year-old
Boston-area resident and day trader, said Wednesday he was still on the
fence on how to vote his approximately 31,000 shares of Dell. Mr.
Finocchiaro said that if Mr. Dell raised the offer to $14 a share, such a
boost would get the deal done, and the special committee should fight for
that bigger increase.
The buyout group called the new
offer its "best and final"—language it hadn't used earlier.
Mr. Icahn, Dell's second-largest
shareholder behind Mr. Dell, has repeatedly criticized the bid.
"All would be swell at Dell if
Michael and the board bid farewell," Mr. Icahn said in a tweet Wednesday
—David Benoit, Kirsten
Grind and Joann S. Lublin contributed to this article.
Write to Sharon
Terlep at firstname.lastname@example.org
A version of this article appeared July 25, 2013, on page B1 in the U.S.
edition of The Wall Street Journal, with the headline: Facing Defeat,
Michael Dell Tries One Last Gambit.
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