What an Overlooked Court Hearing Means for Carl Icahn’s Next Move on Dell
From the earliest days that he sought to put a stop to the $24.4 billion buyout of Dell by the company’s founder Michael Dell and the private equity firm Silver Lake Partners, Carl Icahn, the activist investor, has suggested that he’d resort to the courts in order to be heard.
In his very first letter to Dell’s board on March 7, Icahn promised “years of litigation” challenging the transaction.
The fact is, he and other shareholders have already resorted to the courts. Earlier this year they filed in a Delaware Chancery Court seeking a way to block the deal.
In a June 19 hearing, noticed last week by The Wall Street Journal, a judge soundly turned back that effort, effectively saying that if Icahn and company aren’t offering to buy out all of Dell, they don’t have much of a leg to stand on in arguing against a deal that proposes to do exactly that.
The judge in the case, Chancellor Leo E. Strine, ruled from the bench that the shareholders challenging the buyout effort were wrong to argue that the deal process has been flawed in some way. The key statement from Strine is on page 42 of the transcript, which you can read in full below: “I do not see any plausible, conceivable basis in which to conclude that it is a colorable possibility that you could deem the choices made by this board to be unreasonable with all the different safeguards.”
Essentially, Strine blessed the numerous ways in which the special committee of Dell’s board of directors had structured the “go shop” process. Icahn had criticized it in an open letter to shareholders on June 18, comparing Dell’s board to a real estate agent not really interested in selling a house: “Can you imagine a real estate broker running advertisements warning of termite danger in a house each time a prospective buyer seems interested?”
I am not a lawyer, but it seems that at least one big piece of any legal argument that Icahn or anyone else in his camp might yet float in trying to stop this deal or undo it after the fact is kind of bruised. It’s a fair bet that he’ll find another legal theory to argue when the time comes, though.
Meanwhile, Icahn, Southeastern Asset Management and other shareholders announced one thing they definitely will do: They will vote their shares against the deal, although we pretty much already knew that.
Reacting to today’s recommendation from Institutional Shareholder Services in favor of the Michael Dell/Silver Lake buyout, Icahn and Southeastern issued a joint press release saying they “disagree with ISS’ findings”:
“Southeastern and Icahn disagree with the ISS voting recommendation issued earlier today, which did not appear to address fair value for Dell’s stockholders. … Southeastern and Icahn have repeatedly stated their belief that the $13.65 per share Michael Dell/Silver Lake buyout offer inherently undervalues Dell and that any value-creating transaction Dell enters into should give stockholders the opportunity to participate in the company’s future prospects. We continue to believe that Dell’s owners deserve better and can achieve more by voting against the Michael Dell/Silver Lake transaction and by subsequently electing new directors who will act to create superior value for stockholders. Based on numerous conversations with our fellow Dell stockholders, we are confident that many of Dell’s significant owners share our view.”
Other shareholders who have chimed in with public statements on the matter today include Richard Pzena, head of Pzena Investment Management who, according to CNBC, intends to follow through on his earlier promise to vote against. According to data from Thomson Reuters, Pzena controls about 12.9 million shares, enough for about 0.72 percent of the company.
There haven’t yet been statements from any other major shareholders to change my recent back-of-the-envelope count showing that about 18 percent and change will oppose the buyout.