Compromise Puts Victory Within Michael Dell’s Reach

Just two days after a key part of Michael Dell’s last offer was roundlyrejected, the attempted buyout of his company on Friday took an unexpected turn. Specifically, Dell secured a significant voting concession from the special committee set up by the board of directors in exchange for upping the terms of the buyout deal.

The agreement Dell and partner company Silver Lake have struck is this: They will increase the purchase price from US$13.65 to $13.75 per share; they will pay out a special dividend at or before closing of $0.13 per share; and they guarantee that the third-quarter dividend of $0.08 per share will be paid at or before closing.

In return, the special committee has agreed to modify the voting standard so that the transaction will require approval by the majority of disinterested shares actually voting on the matter. They also pushed forward the record date from June 3 to Aug. 13 and rescheduled the final vote to Sept. 12.

‘A Level Playing Field’

“We believe modifying the voting standard is in the best interests of Dell shareholders, both because it has enabled us to secure substantial additional value and because it provides a level playing field for the decision facing shareholders,” said Alex Mandl, chairman of the special committee.

The revised definitive merger agreement has been approved by Dell’s special committee and by the independent members of Dell’s board of directors.

Icahn Responds

Under the terms of the previous offer, Dell was proposing to buy the company for $24.4 billion, or $13.65 per share — a price point that critics of the deal said undervalued Dell. The new deal increases the buyout by some $470 million, including the next quarterly dividend.

Leaving aside the next quarterly dividend, the agreement will increase the value to shareholders by at least $350 million.

A vote for the original offer had been scheduled for Friday, Aug. 2, over protests and legal maneuvering by activist investor Carl Icahn, who is competing with Dell for the company. Icahn and his attorneys put those tactics on the back burner to deal with this latest development — namely, they filed suit in Delaware Court of Chancery on Thursday to keep the agreement from going forward.

A Roller Coaster Week

It has been a roller-coaster week for Dell and Icahn as they have jockeyed for the better position in their increasingly bitter fight over the company.

The rejection of Michael Dell’s original move to get null votes discounted was a blow to Dell, and Icahn didn’t hesitate to press his advantage.

“Icahn saw it is an opportunity to expedite the vote that would enable him to play a major role in the firm at a much lower cost,” David Cadden, a professor in the Entrepreneurship and Strategy Department in Quinnipiac University’s School of Business, told the E-Commerce Times.

A Price to Pay

Dell effectively paid — to the tune of $350 million to $470 million — to have the rules changed to favor him, Val Wright, principal at Val Wright Consulting, told the E-Commerce Times.

There were two critical components that had to be addressed for Dell to successfully move forward, Wright explained. Namely, the record date needed to be changed and absentee votes needed to be discounted.

“Michael Dell appears to be taking desperate measures to change the rules to guarantee success,” she said. However, these steps may well “add more fuel to Icahn’s litigation fire.”

More Distraction

Indeed, “with voting day moved to Sept. 12, we can expect another six weeks of public battles between Icahn and Dell,” Wright predicted.

“Customers and employees deserve a board and a CEO who are focused on delighting customers and accelerating profits,” she continued. “Finalizing this ownership battle cannot come soon enough for Dell’s 100,000 employees.”

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