Icahn Accuses Dell Board of Trying to Ram-Through Buyout

Billionaire Carl Icahn, who has been working to scuttle a $24.4 billion leveraged buyout of computer maker Dell Inc., sued to stop the company from changing the procedures for voting on the deal.

“The lame-duck board of Dell has been in office for over a year,” refuses to hold a meeting to let investors choose new directors and instead is trying “to ram through a going-private transaction” engineered by company founder Michael Dell, Icahn said in a complaint filed today in Delaware Chancery Court in Wilmington.

The company founder, billionaire Michael Dell, 48, and Silver Lake Management LLC originally offered $13.65 a share for the struggling PC maker. Icahn, 77, and other shareholders oppose the deal, saying it undervalues the company. Icahn proposed an alternative plan that would keep Dell publicly traded.

The suit comes after the buyout group offered this week to raise its bid by a dime to $13.75 per share if Dell’s board changed voting rules to make it easier to win shareholder approval of the offer. So far, Dell directors have refused to change a rule counting absentees as “no” ballots.

The board’s special committee evaluating Michael Dell’s offer said in a securities filing it’s willing to change the date at which investors must hold shares to cast ballots. A vote on the deal currently is scheduled for tomorrow.

Photographer: Scott Eells/Bloomberg

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Photographer: Scott Eells/Bloomberg

Billionaire Investor Carl Icahn has proposed an alternative plan that would keep Dell Inc. publicly traded.

Dell Statement

Dell’s board has “sought to maximize value for, and acted in accordance with its fiduciary duties to, Dell stockholders and will continue to do so,” David Frink, a company spokesman, said in an e-mailed statement.

Dell rose about 30 cents or 2.3 percent to $12.95 in Nasdaq composite trading today in New York. The shares have risen 9.8 percent over the past 12 months.

Icahn is asking a Delaware judge to bar Dell from setting a new shareholder record date, to stop Michael Dell and his affiliates from voting any shares acquired since Feb. 5, the day the deal was announced; to stop the company from changing voting requirements; and find the board breached its fiduciary duties.

Icahn contends in the suit Dell directors put the founder’s interests above shareholder concerns by agreeing to change the ownership date allowing investors to vote on the offer.

The board “is loyal not to the stockholders but to Mr. Dell and is willing to change the rules to help Mr. Dell force his merger through as cheaply as possible,” according to Icahn’s complaint.

Multiple Suits

Shareholders have already sued Dell officials in federal court in Houston, and at least 20 other Delaware Chancery suits are pending. The investors contend Dell board members are duty-bound to get the top price, and have shirked their responsibilities.

“I think Mr. Icahn raises a good point,” Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said in an interview. “Attempting to change the rules in the middle of the game puts a cloud over the deal. It could suggest the offer isn’t sufficiently robust to attract enough support to win.”

Lawyers for Icahn said in the suit the board has taken steps to chase away “long-term holders who opposed the merger and replacing them with arbitrageurs who were far more likely to accept it.”

The chief executive launched “a concerted effort” to convince investors that Dell “is facing enormous headwinds” so they’d sell their shares, which would be bought by arbitrageurs, Icahn contends in court papers.

Record Date

Dell directors are seeking to entrench themselves by agreeing to change the record date for the vote, the billionaire’s attorneys added.

Still, if a judge finds the board committee agreed to change the voting date to insure that the vote is more fair and legitimate, then the change may not be a problem, said Larry Hamermesh, a Widener University professor who specializes in Delaware corporate law.

“This may be okay if the change empowers a more meaningful vote,” he said.

The case is High River v. Dell Inc. (DELL), CA8762, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net; Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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