Michael Dell and Silver Lake Management LLC are unlikely to stick with a sweetened bid of $13.75 a share for Dell Inc. (DELL:US) after the board committee refused to change the rules to make it easier for them to win shareholder support, said a person with knowledge of the matter.
While the committee is willing to change the record date to let more recent shareholders (DELL:US) vote on the proposal, the buyout group doesn’t anticipate that this alone will be enough for them to win approval for their transaction, said the person, who asked not to be named because the deliberations are private.
The committee, however, believes extending the record date could get the deal done, a different person said. The buyers haven’t made a final decision on whether to accept the committee’s concession, the people said. Dell shares sank (DELL:US), signaling that investors lack confidence that Michael Dell will prevail in his bid to regain control of the computer maker he founded in his Texas dorm room almost 30 years ago.
“Not changing the voting standards is a huge blow to Michael Dell, and unless he raises his offer this won’t happen,” Angelo Zino, an analyst at S&P Capital IQ in New York, said in an interview.
Dell’s stock fell 1.6 percent to $12.66 in New York, the lowest closing price since January.
The special committee said today that it’s unwilling to change rules that now count absentees as “no” ballots, instead offering to change the record date if the buyout group keeps their bid at $13.75. Otherwise, the committee said, it’s prepared to proceed with a vote on Aug. 2 on the $13.65-a-share bid founder Dell initially made with partner Silver Lake. If the buyers agree to the committee’s terms, voting would be postponed until at least late August or early September, another person familiar with the situation said.
Representatives from Dell and Silver Lake declined to comment. The original date of record for voting shareholders is June 3.
The computer maker’s board has already twice postponed a vote on the buyout, prolonging months of sparring between the group led by Dell, who is also chief executive officer, and investors such as Carl Icahn who want a higher price. Icahn proposed a $14 a share buyback for about 1.1 billion Dell shares, plus a warrant that could be exchanged for additional stock should Dell climb higher than $20. The company would remain public under Icahn’s plan.
Postponing the Aug. 2 meeting may make it difficult for the board to ignore Icahn’s request that the buyout ballot be held at the same time as the vote on his alternative proposal, which includes a new slate of directors and which is set to be presented at Dell’s annual meeting. According to Delaware law, a company’s shareholders meeting should be within a year of the last gathering. Dell’s previous meeting was July 13, 2012.
If the board changes the record date, “it is imperative, as we have requested for months, that Dell also hold the annual meeting on that same day and at the same time,” Icahn and partner Southeastern Asset Management Inc. said in an open letter to shareholders today. They also praised the board committee for keeping the original voting rules for the CEO’s buyout.
Michael Dell told Bloomberg News in a July 28 e-mail interview that a change of record date alone wouldn’t change the outcome of the vote.
“A change in the record date without a change in the voting standard does not address the central problem that, as things now stand, a minority of the unaffiliated shares voting on the transaction is able to override the will of the majority,” Dell wrote in the e-mail.
The original $13.65-a-share offer Dell and Silver Lake had planned to put to a shareholder vote represents a premium of 25 percent over the computer maker’s closing share price of $10.88 on Jan. 11, the last trading day before news of a deal surfaced. Michael Dell and Silver Lake need a majority of shares to vote in favor of the buyout, excluding the CEO’s 16 percent stake.
Since announcing the buyout Feb. 5, the special committee of Dell’s board has argued that the company’s prospects of a turnaround are better outside of the public lens. Once the world’s leading supplier of PCs, Dell has spent billions of dollars on acquisitions (DELL:US) over the past five years to add enterprise computing hardware, software and services, though the deals have yielded little return (DELL:US) for investors.
The board is projecting another year of lackluster growth in fiscal 2014 as demand for personal computers wanes, underscoring the urgency behind the company’s decision to be taken private. Market conditions also have grown worse. PC shipments, which account for more than half of Dell’s sales, dropped 10.9 percent in the second quarter, their fifth straight period of decline, research firm Gartner Inc. said this month.
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