The fate of the Dell Inc. buyout looked more uncertain than ever Wednesday after the special committee to Dell Inc.’s board rejected CEO Michael Dell’s plan to change the voting rules on how the deal gets approved.
That decision sent the price of Dell Inc.’s stock sharply downward Wednesday as some investors saw the ruling as a new threat to completing the deal, which is worth more than $24 billion. The stock closed at $12.66 a share, down 20 cents, or 1.6 percent, in heavy trading.
The committee’s move appears to make Michael Dell’s path toward getting approval of his buyout plan significantly harder. There was no immediate reaction from Michael Dell, and Dell Inc. spokesman David Frink had no comment.
The next scheduled special shareholders meeting on the buyout is set for Friday morning in Round Rock. Two previous scheduled votes were delayed.
Michael Dell and his financial ally, Silver Lake Partners, last week revised their offer for the company, agreeing to pay $13.75 a share, 10 cents more than previously offered, if the company would agree to change its voting rules. The rules presently count shares that aren’t cast by investors as shares voted against the buyout. Michael Dell proposed that the abstaining votes not be counted at all. An estimated 27 percent of shares in the company have not yet voted on the deal. The 16 percent of company shares that Michael Dell and company senior executives own will not be counted in the approval process.
Dell Inc.’s special committee on Wednesday rejected the change to the voting process, but it did agree to change the “record date,” which would enable another delay of the vote and allow some shareholders who bought Dell stock after June 3 to have a vote over buyout approval. Another delay in the vote might push back the next voting date until late August or early September.
Activist investor Carl Icahn, who has opposed the buyout since March, welcomed the committee’s decision not to change voting rules, but he said the committee should move ahead with the process and not have more delays. His letter to shareholders was titled “Let the Desperate Dell Debacle Die.”
If the committee does approve another delay, Icahn said it should also call for a simultaneous annual shareholders meeting, where new directors could be elected. Icahn already has proposed his own slate of directors. His proposed plan, analysts say, is to first defeat the Michael Dell buyout and then to gain control of the company board.
If he gains control, Icahn has said he would change the company’s management and move forward with a tender offer to buy about 72 percent of the company’s shares for $14 a share. Most of the $15 billion-plus cost of that plan would come from company cash and the sale of receivables, which are debts owed to the company by its customers.
Some analysts said the committee’s ruling casts the buyout in doubt.
“That is a huge blow to Michael,” said tech analyst Roger Kay with Endpoint Technologies Associates. “I am surprised that the board didn’t back him.”
But analyst Brian Marshall with ISI Group said the committee’s ruling can be seen as a compromise that still gives Michael Dell a chance to complete his deal.
Moving the record date forward could allow more short-term speculators, known as merger arbitrageurs, to vote on the deal, and they might be more inclined to vote for the modestly improved Dell offer than to risk the uncertainty involved in having the deal defeated, Marshall said.
“We continue to think that investors should take the $13.75 (offer) and run for the hills,” Marshall said Wednesday. “Dell continues to be the most challenged company in our coverage universe.”
The analyst said that, in the absence of a buyout offer, Dell Inc.’s stock price could fall below $10 a share based on the company’s recent slide in performance in the face of a personal computer industry slump.
Jim Nolen, an Austin investment adviser, said the committee’s ruling shows its independence from Michael Dell and might serve to protect it from a future Icahn lawsuit. The committee is running the buyout process and is charged with working in the interest of all the company’s investors.
Michael Dell’s choices at this point appear to be:
• Go ahead with the Friday vote on the original $13.65 offer.
• Ask for more time for shareholders to consider the $13.75 offer.
• Or ask for more time to consider another revised offer.
The CEO last week referred to the $13.75 offer as “our best and final offer.” Michael Dell has said he would stay at the company even if the buyout is defeated and would fight against proposals like Icahn’s.
If the deal is voted down, Michael Dell probably would be involved in a power struggle with Icahn for control of the company.
“That would be terribly distracting for management and for employees who want to know who they are working for and what the plan is,” Kay said.
Dell Inc. is the largest private employer in Central Texas with about 14,000 workers in the Austin area and more than 100,000 worldwide.