Aug 15, 2013
Dealpolitik: Common Sense Approach to Dell’s
On Friday the Delaware Chancery
Court is scheduled to hold a hearing on
Carl Icahn’s challenge to two changes to the shareholder vote in the
Dell/Silver Lake buyout.
don’t see him prevailing. Here’s why.
For the Michael Dell/Silver Lake buyout to pass muster it must meet two
different thresholds in terms of a shareholder vote. The first is a
statutorily required vote: a majority of the outstanding shares must vote in
favor of the deal. Shares controlled by Mr. Dell are counted in this vote.
If the majority don’t vote in favor, the deal is dead.
The second threshold is solely a condition contained in the merger
agreement. It is sometimes referred to as the “majority of the minority”
vote—but that is really a misnomer. In this situation, it is a vote of a
majority of the 84% of the shares not controlled by Mr. Dell. Dell’s special
board committee insisted on this vote as additional protection for
shareholders given Mr. Dell’s role in the company. In the renegotiated deal,
the special committee has decided that a bit more permissive voting standard
is appropriate. That change is one of the things being challenged by Mr.
The new standard changes the treatment of shares that aren’t voted. In the
first merger agreement, these share were treated as “no” votes. In the new
deal, the no shows aren’t counted for or against—they are treated like Mr.
Dell’s shares. All that is necessary to pass the merger is a majority of the
shares (other than Mr. Dell’s) actually voted.
Here is how the special committee describes its reasoning for changing this
voting standard in its proxy filing Wednesday:
“the original voting standard was set at a time when the decision to be
made by the stockholders at the special meeting would have been between a
going-private transaction and remaining a public company, but since then
the nature of the choice facing stockholders had changed because of the
emergence of an alternative proposal by
Icahn Enterprises and Southeastern who held a substantial number of
shares included as unaffiliated. In the context of the current decision to
be made by stockholders, the Special Committee concluded that it did not
believe it was appropriate to count shares that have not been voted as
supporting any particular alternative for purposes of the unaffiliated
because of an arcane and outdated concept of a “record date,” a
snapshot of the shareholders was taken on June 3 under the original deal and
only those investors who owned shares on that date would have been able to
vote. Thus, former shareholders who sold after June 3 would have been able
to vote even though they have no economic interest. Shareholders who bought
after June 3 got no vote. The new deal changes all of that; as long as
shareholders bought shares by Tuesday of this week, they get to vote.
Icahn is attacking the changes regarding the non-votes and record date. His
main argument is that it is unfair to change the rules in the middle of the
game. And he is right that rule changes in the middle of a fight need extra
Nevertheless, under these circumstances, neither of the changes offends
common sense. If shareholders don’t care enough one way or the other to
express their vote, why should their vote be treated in the “no” column,
particularly where, as the Dell Special committee points out, the
shareholders have alternatives to choose from?
for the record date issue, this doesn’t look like a situation in which the
board has manipulated the record date—with all of the delays (which
admittedly include delays by the company to see if it can turn out a larger
vote), why shouldn’t those who purchased shares in the last couple of months
get to vote rather than people with no stake in the company? Indeed the
Delaware corporate statute itself requires the resetting of the record date
if it is more than 60 days prior to the meeting in the absence of the
company jumping through some procedural hurdles.
seems hard to conclude that these rule changes are unreasonable under these
That leaves Icahn arguing that the court should force Dell to have a vote on
his directors at the same time they vote on the merger. As
pointed out previously in this column, if similar voting rules
were applied to the two matters, he and I would agree that might be a better
way to proceed. But there is no requirement that the Dell directors hold
such a simultaneous vote. The board concluded it was better to proceed with
the meeting on the buyout first. It doesn’t make sense for a court to
disrupt that decision, since Delaware law entrusts the board to make it.
is true that Delaware law provides that “if no date has been designated, for
a period of 13 months after the latest to occur of the organization of the
corporation, its last annual meeting or the last action by written consent
to elect directors in lieu of an annual meeting, the Court of Chancery may
summarily order a meeting to be held.” But the board has designated such a
date and it is October 17.
The board’s decisions may favor the Michael Dell/Silver Lake deal. But that
doesn’t make their decisions improper.
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