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Dell buyout prospects look bleak

Special committee rejects change in voting rules; postponement likely, but may not help

Dell Inc’s special committee denied the request for a change in shareholder voting rules.
Dell Inc’s special committee denied the request for a change in shareholder voting rules.

Dell Inc's special committee yesterday refused a request from the company's founder and his bid partner Silver Lake, to change voting rules, dealing a major blow to the quest to restructure the world's number-three PC maker as a private company, Reuters reported.

Michael Dell and Silver Lake agreed to increase their $24.4bn offer by $150m, amounting to 10 cents a share. According to insiders interviewed by Reuters, the consortium expects the deal to fall through unless voting is decided by a majority of votes cast, rather than the current system, where abstentions are effectively counted as ‘nays'.

CEO and chairman Dell, who founded the company from his college dorm room in 1984, favours a corporate future that focuses on enterprise business, away from public scrutiny. This, he believes, is the best way to reverse the market tumble the company experienced for its PC business in the face of global competition from mobile devices.

Dell stock fell 4% to as low as $12.28 yesterday, its lowest point since news of the buyout broke. Shares closed down 1.6% at $12.66.

Shareholder meetings to decide the fate of the bid have twice been adjourned when it emerged that support for the Dell-Silver Lake proposal was insufficient. Shares not voted amounted to an estimated 27%.

In a letter to Dell and Silver Lake, special committee chairman Alex Mandl expressed a willingness to delay the record date for share voting to August 10. The move would allow more recent stock buyers - such as hedge funds, which bought speculatively, and therefore favour the buyout - to become eligible to vote. However, the insiders said that Silver Lake and Michael Dell do not believe this will be enough to push the deal through.

Billionaire maverick investor Carl Icahn, who holds an 8.7% stake in the company, has become the leading voice against the buyout, fielding a counter offer in partnership with Southeastern Asset Management Inc, another major shareholder. Icahn and Southeastern wrote a letter to shareholders yesterday, urging them 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.

The duo also said Michael Dell should be prevented from raising his stake in the company, which would strengthen him for the proxy fight that is expected to follow if his bid is rejected by shareholders.