With a Month to Go Before Dell’s Buyout Vote, Eyes on Proxy Advisory Firms
Set for July 18, it may yet be close, or it may not. Much of that will be determined by whether the activist investor Carl Icahn walks away from the proxy fight he started as he has been reported to be considering.
But another key step in that process is fast approaching. The two major proxy firms, Institutional Shareholder Services and Glass Lewis, have yet to weigh in on the proposal by CEO Michael Dell and the private equity firm Silver Lake Partners. The opinions of those firms will carry a lot of weight among certain institutional shareholders. A recommendation against the buyout by either firm — ISS in particular — could sway enough shareholders that its approval might be in doubt.
As yet, neither firm has given any indication as to its opinion of the deal. CNBC reported Friday that meetings between representatives for Dell and Silver Lake and the proxy firms had not yet taken place.
The proxy firm recommendations matter in part because of the way the proxy vote will be structured. Under terms of the buyout process established by a special committee of Dell’s board of directors, neither Michael Dell nor any of his affiliates that control a combined 15 percent and change of the outstanding shares can cast a vote. That means a majority of slightly more than 42 percent have to vote in favor.
Those against the deal so far include Icahn and Southeastern, which control a combined 12.53 percent of the company’s shares. Others that have previously expressed opposition to the deal include fund manager T. Rowe Price, which had 4.09 percent of Dell shares as of March 31, and Pzena Investment Management and Yacktman Asset Management, which control a combined 1.58 percent of shares.
One critical block of shares belongs to investment funds that are passively managed, including some index funds and exchange traded funds. According to data from Thomson Reuters, more than 16 percent of Dell shares are in the hands of index funds. In some cases, these funds vote exactly as the proxy firms recommend.
According to a source close to the process, as much as 10 percent of Dell’s shares are in the hands of firms that have so-called “auto pilot” proxy policies and vote with the advisory firms. Another five percent to 10 percent will be heavily influence by the firms’ opinions.
The largest of these include State Street Global Advisors, which has 3.46 percent of Dell’s shares, and which gets some advice from ISS. Invesco’s PowerShares funds unit gets its advice from Glass Lewis.
Other firms keep their own counsel on proxy votes and vote according to their own proxy policies. The Vanguard Group (proxy guidelines here) and the iShares funds controlled by the investment firm BlackRock (proxy guidelines here) are two of the the largest in this camp: Vanguard owns 3.7 percent of Dell shares while BlackRock’s funds control about 3 percent.
In looking over all this I prepared a handful of spreadsheets. I’ll share screen grabs of two.
The first is a breakdown of the top 21 shareholders of Dell (Michael Dell, plus the next 20). Those that have previously indicated opposition to the buyout in public statements are highlighted in red. Remember that about 42 percent of shareholders need to vote in favor for the buyout to be approved. (Most of these investment stakes were current as of March 31, based on public filings, and therefore don’t account for any changes that might have occurred since then.)
The second is the top 10 index fund companies that hold Dell shares.