The new agreement includes a special dividend of 13 cents per share along with an offer increased by 10 cents per share to $13.75 per share, Dell’s special board committee, set up to ensure shareholders are getting the best deal, said in a statement.
Dell shares were up about 5 percent at $13.61 in early Friday trading.
A vote on the buyout, held under a the new standard, has been rescheduled for September 12, while the record date, which determines which shareholders are entitled to vote, will be reset to August 13 from June 3.
The new deal and delay in the voting date boost the buyout consortium in several ways.
Abstentions under the previous voting system counted as “no” votes, and with an estimated quarter of eligible shares not having been voted either way, that was a substantial hurdle to overcome. Under the new deal, shares that are not voted will be excluded from the tally.
As with the previous deal, Michael Dell, who has a 15.7 percent stake in the company, will be excluded from the vote and his shares not counted in the tally.
A change in the record date by more than two months is also seen as enfranchising so-called arbitrage investors – hedge funds that bought Dell stock more recently to earn a few cents per share and would likely support the buyout.
Under the deal, Dell shareholders will also be entitled to three regular quarterly dividends of 8 cents per share totaling 24 cents, since the first deal with Michael Dell and private equity partner Silver Lake was announced on February 5.
The special dividend of 13 cents per share will be funded with excess equity resulting from Michael Dell’s rolling over his shares in the deal at a lower price, subsidizing Silver Lake’s returns, according to a person familiar with the matter.
He had previously agreed to roll over his shares at $13.36 per share, lower than the $13.65 per share original buyout offer.
Together with the 10 cent per share increase in the buyout offer, this results in an increase in the original $24.4 billion bid by about $350 million.
“If you have to go through these machinations to get these things through, it frankly is an excellent demonstration of why management buyouts are so problematic,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
Although there is no regulatory or legal requirement for the buyout vote tally to include shares that are not voted, changing the rules of the game at this stage will likely give more ammunition to shareholders challenging the deal in court, legal experts said.
For the third time, Dell on Friday adjourned a meeting in Round Rock, Texas, to vote on Michael Dell’s buyout proposal. The vote had already been delayed from July 18 and July 24.
Dell’s founder and Silver Lake want to take the company private, arguing that a painful restructuring can best be performed away from stock market scrutiny.
But the battle over that deal has raged for months, adding further uncertainty about a company already shrinking along with a rapidly declining PC market. During a so-called ‘go-shop period’ after the deal was announced, Blackstone Group LP carried out due diligence on the company but decided against a rival deal.
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 onboard.
The Michael Dell-Silver Lake group said last week it would raise the offer to $13.75 per share if the voting rule were changed, but the special committee rejected that offer earlier this week. The special dividend has now clinched a compromise.
ICAHN CALL FOR EARLY BOARD ELECTION REBUFFED
Activist investor Carl Icahn, who said Michael Dell’s offer of $13.65 was too low, has amassed an 8.7 percent stake in the company and is leading an opposing charge with Southeastern Asset Management Inc with an offer of their own.
Icahn has campaigned hard to get Dell to set a date for an annual shareholder meeting so he could put up his own slate of company directors.
But Dell refused to give him such a chance. It said on Friday the annual meeting would be held on October 17, long after the buyout vote is held.
Dell special committee chairman Alex Mandl on Friday referred to Icahn and Southeastern in the company’s decision to change the voting standard.
“The original voting standard was set at a time when the decision before the shareholders was between a going-private transaction and a continuation of the status quo,” Mandl said in a statement.
“Since then, the nature of the choice facing shareholders has changed because of the emergence of an alternative proposal by certain stockholders. In the context of the current decision, the committee does not believe it is appropriate to count shares that have not been voted as having been voted in support of any particular alternative.”
On Thursday, Icahn fired his latest broadside, suing Dell Inc and its board to block substantial changes to the CEO’s buyout offer that would include changing the voting and record dates.
The company, created by Michael Dell in his dorm room in 1984 and which rapidly grew into a global market leader, is now a shadow of its former self.
Some investors, led by Icahn and Southeastern Asset Management, say Dell still has time to transform itself as a public company 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 percent drop in profit for the latest quarter.
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