By Greg Roumeliotis
NEW YORK, July 31 Michael Dell's and Silver
Lake's $24.4 billion bid to take Dell Inc private
suffered a blow on Wednesday after the company's special
committee rejected their request to change the voting rules in
exchange for them offering $150 million more.
Dell shares fell more than 4 percent to as low as $12.28,
their lowest level since news of the takeover broke on Jan. 14,
highlighting uncertainty among shareholders about the deal's
prospects. They closed down $1.6 percent at $12.66.
Michael Dell, who founded the eponymous company in 1984 from
his college dorm-room, has been arguing since February that Dell
needs to restructure as a private company to respond to the
challenges posed to its computers by smart phones and tablets.
The special committee, set up by Dell's board to assess
whether shareholders were getting the best deal, refused on
Wednesday to change the voting rules on the deal but said it
would be willing to move the vote's record date forward.
A person familiar with the matter later said Dell's chief
executive and Silver Lake expect their deal to collapse unless
there is a change in how shareholder votes are counted.
At present, the buyout must be approved by a majority of all
Dell shares, excluding the 15.7 percent stake held by Michael
Dell and his affiliates. The buyout group last week raised its
offer by 10 cents per share on the condition that the deal goes
through if approved by a majority of the shares that are
This followed two adjournments of shareholder meetings, on
July 18 and July 24, after it became apparent the buyout group
did not have enough votes supporting the deal.
The consortium estimated that in the latest tally, about 27
percent of Dell's shares had not been voted and were therefore
counted as "no" votes under the current voting standard.
Alex Mandl, the special committee's chairman, wrote in a
letter to the buyout group, "The committee is not prepared to
accept your (voting rules) 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."
The record date determines which Dell shareholders are
entitled to vote on the deal. A second person familiar with the
matter said the special committee would be willing to push the
record date to Aug. 10 for the vote to be held on Sept. 10.
MOVING THE RECORD DATE
A shareholder meeting to vote under the current system on
Michael Dell's and Silver Lake's original offer of $13.65 per
share is scheduled for Friday.
"I would prefer to see an up or down vote than to see this
be dragged out. I won't try to predict what will happen on
Friday because they are so unpredictable," said Gautam Dhingra,
chief executive of High Pointe Capital Management LLC, one of
the several small Dell shareholders that oppose the deal at
$13.75 per share.
The first source familiar with the matter said the buyout
consortium believes that changing the record date is not good
enough. Unless the voting standard changes, this is the end of
the road for the deal, the source said.
The current record date is June 3 and market experts believe
moving it forward benefits Michael Dell and Silver Lake because
it gives them the backing of hedge funds that have bought Dell's
stock more recently with a view to earning just a few cents per
share when the deal goes through.
It is however far from clear that the support of such
investors would compensate for not changing the voting system.
"The question with moving the record date of course is, are
there going to be enough votes for them to meet the threshold,"
said Andy Levine, a mergers and acquisitions lawyer at Jones
Activist investor Carl Icahn, who has amassed an 8.7 percent
stake in Dell and is leading a charge with Southeastern Asset
Management Inc against the buyout with an offer of their own,
wrote in a letter to Dell shareholders on Wednesday it was time
"to let the proposed freeze-out merger die".
"Take the vote on Friday. Be at peace with the
outcome. Immediately set the record date for the annual meeting
and give stockholders the choice they deserve after all these
months of uncertainty," Icahn and Southeastern wrote.
If the record date is reset and Friday's vote is postponed
once again, then the annual meeting of shareholders should be
held on the same date as the vote so that Dell shareholders are
offered an alternative option, the two investors wrote.
If the buyout is rejected, Dell's board should prevent
Michael Dell from increasing his stake in the company and
therefore strengthen his hand in a proxy fight, they added.