Icahn sues Dell in latest attempt to foil buyout

02 August, 2013

Activist investor Carl Icahn sued Dell Inc and its board on Thursday, his latest attempt to derail a $24.4 billion buyout bid by founder and CEO Michael Dell.

Icahn asked a court to block rule changes Michael Dell has proposed ahead of a shareholder vote set for Friday. Icahn and his affiliates also want the court to stop Dell Inc from changing the record date by which shareholders must have purchased their shares in order to vote.

They also want to stop Michael Dell and his affiliates from voting any Dell shares acquired since February 5 when his buyout bid announced, and to ensure the company does not change any shareholder voting requirements.

The lawsuit, filed in the Court of Chancery of Delaware, also seeks to force the company to call an annual shareholder meeting on the same day as the special meeting on the buyout in case Dell Inc sets a new record date.

Icahn, who has urged fellow shareholders to reject the offer by CEO Dell and private equity firm Silver Lake to buy and take the company private, has been campaigning hard to get Dell to set a date for the annual shareholder meeting so Icahn can put up his own slate of directors for the company.

A spokesman for Dell Inc declined to comment on the suit.

A vote on the buyout, which has been postponed twice before, is now scheduled for Friday and sources familiar with the matter have said another adjournment is unlikely. The special committee has said it would put the original buyout offer of $13.65 per share up for shareholder vote.

Dell’s special board committee on Wednesday had rejected new voting terms in a revised bid by Michael Dell and Silver Lake, which raised their offer price last week by 10 cents to $13.75 per share on the condition the voting rules were changed. Currently, shareholders who abstain are counted as voting against the deal, but the buyout group wanted those investors to be excluded from the tally.

Dell shareholders convene for a third time on Friday to vote on CEO Michael Dell’s $24.4 billion buyout, helping decide the fate of the No. 3 PC maker after months of dueling with Carl Icahn and other unhappy investors.

The meeting in Round Rock, Texas, comes after two previous adjournments, when the company wasn’t certain of gaining enough votes for what would be the largest buyout since the financial crisis.

Unless it’s postponed again, Friday’s vote may prove crucial in determining the future of the struggling company. Its founder and private equity firm Silver Lake want to buy and take the company private, arguing that a painful restructuring can best be performed away from Wall Street’s scrutiny.

But the battle over that deal, announced in February, has raged for months, casting a pall of uncertainty over a company already shrinking along with a rapidly declining PC market.

The CEO, his advisers and proxy solicitors have gone back and forth with shareholders whose votes are needed to secure the deal. They’ve had some success, managing to get prominent investors such as BlackRock Inc. and Vanguard on board.

But activist investor Icahn, who views Michael Dell’s $13.65-a-share offer as too low, has amassed an 8.7 per cent stake in the company and is leading an opposing charge with Southeastern Asset Management, with an offer of his own.

He has campaigned hard to get Dell to set a date for an annual shareholder meeting so he can put up his own slate of directors for the company.

Dell shares are expected to fall sharply if the deal falls through. On Thursday, they closed just below $13.

Round & round

Sources say the outcome of any vote remains a toss-up unless the deal’s terms are changed. Michael Dell has proposed a higher $13.75-a-share, but only if the company’s special committee — appointed to review the deal — agrees to change voting rules to exclude abstentions from the count.

Abstentions currently count as “no” votes, and with an estimated quarter of eligible shares not having voted either way so far, that’s a substantial hurdle to overcome.

The special committee, however, rejected that requirement after several major shareholders expressed outrage. Instead, the committee offered to change the record date, or the date at which a shareholder is considered eligible to vote.

Such a change is also considered beneficial to getting the deal pushed through, because a later record date would bring a lot of so-called arbitrage investors into the game, who are deemed more likely to want a deal.

In the longer term, investors remain divided over Dell’s prospects. Some are ready to cash out of a company increasingly vulnerable to a crumbling PC market. The company created by Dell in his dorm room in 1984, and which rapidly grew into a global market leader renowned for innovation, is a now shadow of its former self.

Others, led by Icahn and Southeastern Asset Management, are convinced the company still has time to transform itself into a dominant provider of business computing services.

Icahn has accused the company of resorting to “scare tactics” by disclosing bad news and dismal forecasts. Dell reported a 79 per cent drop in profit in its latest quarterly report.


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Icahn sues Dell in latest attempt to foil buyout

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