Michael Dell Says LBO Vote Method Unfair as He Pushes Bid
Michael Dell, in comments that were by turns unbowed and resigned, said he won’t raise his buyout offer for Dell Inc. (DELL) and conceded that he had agreed to a method of counting shareholder votes that “does not make sense.”
The Dell founder and partner Silver Lake Management LLC last week raised their offer by a dime to $13.75 a share, or $24.6 billion. The increase was contingent on the special committee of the computer maker’s board changing a rule that unvoted shares be tallied as opposing the deal, a provision that has so far thwarted the bidders from winning approval.
The conditional increase of $150 million to $24.6 billion “is substantial,” especially since “no other party was willing to pay more than $13.65 per share” for all of the shares of the Round Rock, Texas-based company, Dell said yesterday in an e-mail. “This is our best and final offer.”
The 48-year-old billionaire agreed to answer questions by e-mail as he and Silver Lake try to salvage their deal, which has been opposed by investors including Carl Icahn and Southeastern Asset Management Inc. The special committee overseeing the sale has already adjourned the vote twice as the buyers seek to round up enough votes.
A majority of unaffiliated shares -- those excluding Michael Dell’s 15.6 percent stake -- is needed to win passage. The next vote is scheduled for Aug. 2.
“With the benefit of hindsight, I believe it is clear that the voting standard in our contract does not make sense,” Michael Dell wrote. “It provided the opportunity for someone who had never been a shareholder of our company to come in and organize a minority blocking group, even though a majority of the unaffiliated shares voting on the transaction would like to accept it.”
He was referring to Icahn, the 77-year-old activist investor who built an 8.7 percent position in the stock after the LBO was announced. He has teamed with Southeastern, a longtime Dell investor. Icahn most recently has pressed for a $14-a-share stock buyback that would keep the company public.
Icahn has threatened a proxy fight if Dell’s offer is voted down. He would have to install his own slate of directors to forge ahead with his recapitalization plan.
Icahn and Southeastern Asset Management, in an open letter today, urged the special committee of Dell’s board not to change the voting rules. A representative of the special committee wasn’t immediately reachable. David Frink, a company spokesman, declined to comment.
Dell fell 1 percent to $12.81 at 9:39 a.m. in New York.
As of early July, investors opposed to the original $13.65-a-share transaction owned more than 20 percent of Dell shares, according to a report from shareholder adviser Glass Lewis & Co. About 27 percent of shares -- not including Michael Dell’s holdings -- haven’t been voted, the buyers said last week.
Michael Dell said in his e-mailed comments that to count absentee ballots as “no” votes has played into Icahn’s hands. He reiterated his opposition to recapitalization plans such as Icahn’s, under which Dell would borrow to buy back its own shares.
Dell, who is chairman and chief executive officer of the company, vowed to stay on if his buyout plan founders. If Icahn does get his plan through, the CEO held out the possibility that he may refrain from tendering his shares. In that case, he wrote, his stake in the company would climb well above Icahn’s, to 42 percent.
The special committee is open to changing the voting rules if the buyers boost their offer to at least $14 a share, people familiar with the matter said last week. While saying $13.75 is his final bid, Michael Dell said changing the rules in a way that would bolster his chances was the right thing to do.
“In my view, the voting standard we have proposed is the most fair standard regardless of the price,” he wrote. “The outcome should be decided by the unaffiliated shares that vote, not by shares that don’t vote.”
The executive acknowledged that he may not get his way.
“As I have said before, so long as the majority of the unaffiliated shares voting on the transaction get to make this decision, I am at peace either way and I will honor their decision,” he said.
Dell said, as he has since he made his offer, that he can better carry out his agenda for reviving Dell outside the lens of public ownership. That agenda includes bankrolling new enterprise-software products and tablets, expanding in emerging markets, improving customer service and bolstering the core personal-computer business.
“We have been trying to pursue a number of these strategies as a public company,” he said. “But I believe we are rate-limited as a public company, given the need to take into account the impact of anything we do on our public stock price” and the impact of that on Dell’s employees and customers, he said.
“I am seeking to take Dell private because I think it’s the right thing for the company.”
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