Dell’s $24.4 Billion Buyout Vote Comes Before Shareholders, Again, Maybe, or Not
There’s a fair chance that the ongoing drama surrounding the proposed $24.4 billion leveraged buyout of the struggling computer company Dell will finally face a vote of shareholders Friday morning. Or it may not. There may be another procedural delay.
Yesterday, the deal appeared to be near collapse, as the special committee of Dell’s board rejected a proposal by Michael Dell and his partner in the proposal, the private equity firm Silver Lake, to change the rules of the shareholder vote that requires a non-vote to be tallied in the “opposed” column.
While the special committee has repeatedly supported the buyout in communications with shareholders and called it the best option, better even than the recapitalization proposed by the activist investor Carl Icahn, the committee appears to have painted itself into a corner. Unless there’s a sudden and unexpected change, as the math currently works out, shares not voted amounting to about 27 percent, combined with about 20 percent of shares controlled by people in Icahn’s camp, have a 47 percent block of shares. (Since CEO Michael Dell is required to abstain from voting, only a 43 percent majority of total shareholders is required to approve or reject it.)
What that means is that if a vote is actually held Friday, then the buyout will be rejected and Silver Lake will walk away.
Shareholders in the Icahn camp will move to adjourn the “special” meeting of shareholders and make a motion to convene the annual meeting of shareholders right away. If that happens, the proxy election for directors will come up, and the slate of directors that Icahn submitted on May 17 will be up for consideration.
Here’s where it will get messy. Michael Dell, still the largest shareholder in the company, will be allowed to start voting his proxy again. That makes it unlikely that Icahn will get all the directors he wants. Without full control of the board, Icahn can’t finance the recapitalization plan he’s proposed, because his funding commitments require complete control of the board.
Icahn’s plan calls for buying out up to 72 percent of shares at $14, paying a special dividend out of existing cash on the balance sheet and new debt, and giving remaining shareholders a warrant to buy more shares at a price of $20 sometime in the next seven years.
The result is that neither Michael Dell nor Carl Icahn will get everything he wants. The company’s board of directors will be divided in its loyalties and in its view of the way forward. Meanwhile, Dell shareholders will likely be left in the lurch. There’s a pretty good chance that if the buyout fails, Dell shares will fall significantly, and the corporate drama that began a year ago will continue for some time to come.
Or the meeting of shareholders could be delayed, just like the last one was. We’ll all see tomorrow.