July 24, 2013 / 1:11 PM / in 5 years

UPDATE 4-Dell founder ups takeover bid based on voting rule change

* Michael Dell raises offer by $0.10/share
    * Bid increase conditional on voting rule change
    * Special committee seeks at least $14 to consider vote
    * Dell postpones shareholder meeting to Aug. 2
    * Shares up 0.3 percent

 (Adds details on similar voting rule changes)
    By Poornima Gupta, Soyoung Kim and Greg Roumeliotis
    July 24 (Reuters) - Dell Inc founder Michael Dell
raised his $24.4 billion bid by less than 1 percent just hours
before it was to be put to a vote, tacking on a controversial
demand to change voting rules to make it easier for him to buy
and take the No. 3 personal computer maker private.
    A special board committee on Wednesday was reviewing the
CEO's sweetened $13.75 offer and requirement that a majority of
votes cast be enough to seal the deal, an easier threshold for
him to meet.
    But the committee wants at least $14 per share to even
consider that change in voting terms, a person familiar with the
matter said. And Silver Lake, which is backing Michael Dell's
now roughly $24.6 billion bid, will not back an increase to $14,
said a second person familiar with the matter. 
    The vote on the buyout was postponed for a second time, to
next Friday, to give investors yet another week to consider. The
first vote had been slated for July 18.
    Michael Dell's unusual demand sparked outrage among major
investors and is likely to incite aggressive legal challenges,
law experts say. His offer now requires a majority of all
shareholders' votes, a difficult bar to meet because about a
quarter of shares have not been voted either way, which then
count as votes against him.
    Activist investor Carl Icahn, who has amassed an 8.7 percent
stake in Dell and is leading a charge with Southeastern against
the buyout with an offer of his own, tweeted on Wednesday that
"all would be swell at Dell if Michael and the board bid
    "The latest change is a "transparent attempt to force their
freeze-out transaction across the finish line despite the vote
of its stockholders," Icahn said in a subsequent statement.
    The sweetened offer, which Michael Dell and Silver Lake
called their best and final proposal, comes after the group
refused for months to consider a raised bid despite growing
opposition from Icahn and other shareholders.
    Richard Pzena, founder and co-chief investment officer of
Pzena Investment Management, which owned 0.73 percent of Dell's
outstanding shares at the end of March, called the proposed
change in shareholder voting rule "outrageous".
    "Certainly the 10 cents wouldn't sway anybody so they have
to change the rules, and if the special committee goes along
with this, it would be a travesty," Pzena said.

    Experts say the CEO's attempt to change the voting rules is
legal but almost certain to get challenged in court, where
there's been little precedent.  
    While trying to change voting provisions with a raised bid
is uncommon, similar tactics have been employed by other
companies in the past when investor support was lacking.
    OSI Restaurant Partners Inc., owner of the Outback
Steakhouse chain, was bought by Bain Capital Partners and few of
the OSI management in 2007 after the group bumped up their offer
price and changed the voting requirements. That case, which is
not directly comparable because it involved excluding the
founder's and management's shares from the vote, was challenged
in Florida and Delaware courts and dismissed.
    But Brian Quinn, a professor at Boston College Law School
who runs the M&A Law Prof Blog, said that Michael Dell and
Silver Lake may face a higher burden of proof in court.
   "When the lawsuits, of which there are many, proceed the
board won't get the protection of business judgment but will
have to prove fairness," he said.
    Fairness puts the burden on the board to prove the price and
process were fair. Business judgment is much more management
friendly and puts the burden on plaintiffs to prove there were
conflicts of interest or lack of good faith.
    "That's a big wrinkle," he said.
    Dell shares closed up nearly 3 percent at $12.91 on
    "According to our latest tally, approximately 27 percent of
the unaffiliated shares have not yet been voted. The presumption
that these shares should be treated as if they had voted against
the transaction is patently unfair," Michael Dell and Silver
Lake said.
    The votes that have come in so far are split evenly between
yes and no, according to people familiar with the matter. That
means those who abstain from voting can determine the outcome.
    The buyout group believes it can get the votes to pass the
deal if Dell will count just the shares that have been voted.
The provision of counting non-votes as a "no" was accepted
reluctantly by the bidders as it sets a very high threshold to
meet, according to one of the sources.
    Another investor said the new offer is not really a bump.
    "This is not about how to win the deal, this is about how
Michael Dell exits the process," said the Dell investor, who
requested anonymity. "They're really putting the screws on the
special committee but I don't see how the special committee can
accept the conditions."

 (Additional reporting by Jessica Toonkel, Supantha Mukherjee,
Nadia Damouni and Tom Hals; Editing by Rodney Joyce, Sofina
Mirza-Reid and Leslie Gevirtz)
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