Dell’s Retail Shareholders Play Key Role in Takeover Vote

George Fremin bought 13,000 shares of Dell Inc. (DELL) in 1992 and has owned them ever since. He calls himself a loyal shareholder -- and that’s why he cast his vote a few weeks ago against a proposed $24.4 billion leveraged buyout for the personal-computer maker.

“I want to remain a stockholder in a publicly traded Dell,” said Fremin, 80, a retiree who lives 15 miles from the company’s headquarters in Round Rock, Texas. “I believe in the upside of the stock, no question.”

Fremin and others who own tiny amounts of a company’s stock rarely make a difference in votes on major deals. Yet his actions and those of other Dell retail stockholders are taking on an outsized importance as Michael Dell and partner Silver Lake Management LLC work to close their controversial $13.65-a-share LBO, which is scheduled to go to a twice-adjourned shareholder vote tomorrow, barring any last-minute surprises.

“Every shareholder’s vote counts, even the little ones,” said Brian Quinn, a professor at Boston College Law School. “In this deal more than in most, because the board was not required to ask for the majority of unaffiliated shareholders to approve the deal, but it did in an overabundance of caution.”

Photographer: Sam Hodgson/Bloomberg

Cars sit parked outside of Dell Inc.'s headquarters in Austin, Texas. Close

Cars sit parked outside of Dell Inc.'s headquarters in Austin, Texas.

Close
Open
Photographer: Sam Hodgson/Bloomberg

Cars sit parked outside of Dell Inc.'s headquarters in Austin, Texas.

The LBO faces opposition from several large institutional investors, including Southeastern Asset Management Inc. and activist billionaire Carl Icahn, who have proposed a $14-a-share buyback that would keep Dell public.

Vote Math

The deal can only pass with a majority of votes, excluding Michael Dell’s 15.6 percent stake in the company, while abstentions count as no votes. As of July 24, more than 25 percent of unaffiliated holders hadn’t voted, Michael Dell said in a letter that day. And investors opposed to the transaction owned more than 20 percent of shares as of early July, according to a report from shareholder adviser Glass Lewis & Co., which backed Dell’s original bid with Silver Lake.

Retail shareholders make up about 11 percent of Dell’s stockholder base, according to a person familiar with the situation who asked not to be identified because the information isn’t public. Shareholders can recast their vote as many times as they want until the last minute. With the margin of victory in the vote set to be slim, winning that retail slice is increasingly crucial.

Yesterday, Dell’s special committee of the board rejected an attempt by Michael Dell and Silver Lake to change the voting rule with a sweetened $13.75-a-share offer. The board said it’s willing to change the June 3 record date of shareholders, but not the absentees’ voting rule.

Decision Time

Michael Dell and Silver Lake haven’t made a final decision on whether to proceed with the record date change -- which would delay the shareholder vote until at least late August -- or to go ahead with the $13.65-a-share offer tomorrow, said the person.

Chief Executive Officer Dell said in his July 24 letter to shareholders that the $13.75-a-share offer is “best and final” and that “it is in the best interests of the company and our shareholders.”

David Frink, a spokesman for Dell, declined to comment. A Silver Lake representative declined to comment.

The gamesmanship over the LBO has done little to win over individual shareholders such as Russell Grant, 44, a marketing manager from Orlando, Florida. Grant, a Dell shareholder for 15 years who owns 4,700 shares of the computer maker in a retirement account and 3,700 shares in a personal account, said he has voted against the LBO because he is “angry at Michael Dell.”

What Value?

Dell has spent about $13 billion on acquisitions over the past five years to add enterprise computing hardware, software and services. Grant questions the value created by those purchases. “If they have no value, it speaks of the company’s mismanagement,” he said.

Instead, Grant is backing Icahn and Southeastern’s alternative proposal. “I don’t trust the overall process, but I trust Icahn’s money,” he said.

The opposition of some retail shareholders is unusual given that most tend to vote following the recommendation of a company’s board, according to Erik Gordon, a business professor at the University of Michigan.

“What makes this management buyout ugly and memorable is that it is not the buyout of some company in Cleveland that makes air compressors that nobody cares about,” Gordon said. “This is the buyout of a company whose leader’s name is on the door, whose leader has been a cult figure to his investors, they loved him and now he says: I think I can make more money without you guys.”

In Favor

Other small owners of Dell stock said they are in favor of the buyout. Otto Pfahl, 65, who has owned Dell shares for more than a decade, said he voted for the LBO because he would rather see CEO Dell remain at the helm.

“The CEO and founder is more directly involved in making the company prosperous than someone who doesn’t know it,” said Pfahl, a retiree from Round Rock. “If Icahn takes it over, he will cut costs and many more jobs are going to end up overseas than they already have.”

Fremin, meanwhile, would profit handsomely from the LBO since he made his initial Dell investment at less than $1 a share. Yet after owning Dell stock through the late 1990s when it touched $60 a share, he said he believes it could come back.

“I could be totally wrong, but to me it’s a very real thing,” he said.

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editor responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.