Jul 25, 2013
Dealpolitik: A Fair Solution to the Dell
The Dell deal has become a bit of
a mess. Twice Dell has put off its shareholders’ meeting because it has been
unable to get the votes to approve Michael Dell’s and Silver Lake’s $13.65
per share cash buyout of Dell. On Wednesday, the buyout group proposed to
change the rules of the game—which they had agreed to months ago—to make the
required vote easier to obtain in return for a relatively insignificant
price increase of ten cents per share.
Although Dell’s special committee legally could say yes to this last minute
gambit if it jumps through the right hoops, it is not clear it is a good
First, it looks bad to change the rules the buyout group and the special
committee have been following for months. Of course dissenters Carl Icahn
and Southeastern Asset Management have screamed bloody murder over the
last-minute change. They are trying to convince shareholders to defeat the
buyout, throw the incumbent board out at Dell’s annual meeting and implement
their alternative: a recapitalization plan that would see the company use
its cash and newly borrowed funds to buy back most, but not all of the
Perhaps more important, the easier voting standard may not solve anything.
It is not clear that the buyout has enough support among shareholders to
pass even with the more liberal threshold. And if it doesn’t, then Dell will
immediately head into another proxy fight in which Icahn and Southeastern
seek to replace the board.
bottom line is that most shareholders might want to see a transaction, but
disagree as to which transaction to pursue. There seems to be a fair and
logical solution to this problem giving each competing group a shot at what
it wants: Have the annual meeting at the same time as the vote on the buyout
so shareholders effectively have a choice as to which deal to implement,
just as Icahn and Southeastern have demanded.
shareholders vote in favor of the management buyout, then it will happen.
However, shareholders will be offered at the same time the alternative of
installing the Icahn/Southeastern director nominees. And if shareholders
prefer to keep Dell as a public company in its current state—which seems to
be Mr. Dell’s Plan B based on a letter he wrote to Dell shareholders
Wednesday night–they can vote against both proponents and send Mr. Dell back
to working for public shareholders.
to the vote required for either proposal, the special committee should do
what is necessary to put each proposal on an equal footing.
First, it should ask Icahn and Southeastern to agree that, like Mr. Dell in
connection with his proposal, a majority of shares voted and not controlled
by them will be required to elect their director nominees (which election is
effectively is a plebiscite for their recapitalization proposal). If Icahn
and Southeastern are willing to agree to such a voting agreement, then the
committee can adopt the Dell/ Silver Lake recently proposed voting standard
requiring the favorable vote of a majority of the shares voted and not
controlled by Mr. Dell for approval of the Dell/Silver Lake deal. In this
situation each proponent would have to persuade holders of a majority of
shares voted and not affiliated with the proponent in order to implement its
if Mr. Icahn and Southeastern refuse such a proposal (i.e. insist their
votes count in the election of directors), the committee should take the
bold step of modifying the vote requirement in the Dell/Silver Lake deal to
merely require the vote of a majority of the outstanding shares, so Mr.
Dell’s shares are counted equally with all other shares.
Allowing Mr. Dell’s shares to be counted in the vote on his own deal doesn’t
seem unfair in this circumstance—particularly if it were done in exchange
for allowing a simultaneous Icahn/Southeastern an up or down vote. Icahn and
Southeastern get to vote on their proposal, so why not let Mr. Dell vote on
his? The advantage Mr. Dell gains by this is offset by the ability of Icahn
and Southeastern to propose a tangible alternative in a timely fashion.
would be best off finding a way of breaking this logjam. Otherwise it could
easily squander more time in connection with damaging and extended fights.
Tweaking the voting rules as proposed Wednesday by Mr. Dell and Silver Lake
will be controversial since it clearly favors Mr. Dell for a relatively
insignificant price increase. Instead, why not let the shareholders decide
Dell’s fate on a one share, one vote basis at a single meeting?
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