Icahn contests condition in latest Dell offer

Billionaire investor Carl Icahn is warning that the latest offer from Dell's founder to buy the struggling computer maker bypasses an important shareholder safeguard.

Icahn and the investment firm Southeastern Asset Management said in a letter to a special committee of Dell Inc. board members that Michael Dell wants to circumvent the voting process behind the deal by preventing stockholders from passively dissenting on the offer.

Icahn and Southeastern are major Dell shareholders who have been leading a push to defeat Michael Dell's plan.

Last week, a group led by founder Michael Dell and the investment firm Silver Lake Partners raised their buyout offer for the Round Rock, Texas, company to $13.75 per share, up a dime from $13.65.

But they also want a change in the voting rules. They say the offer's fate must be decided by the shareholders who choose to vote either in favor of the plan or against it. Previously, non-voting shareholders were counted as opponents of the proposal.

Icahn and Southeastern said in an open letter to the board committee that they believe many Dell stockholders who oppose the deal may have not voted because they knew their inaction would count as a vote against the merger. They say the group led by Michael Dell is now essentially offering to pay a dime per share for a new voting method that prevents many stockholders from rejecting the deal.

"We trust that you will see this for what it is and recognize that proper protections for stockholders of Dell should not be offered for sale to anyone at any price," the letter stated, adding that the standard for approval that counts non-voting shares is perhaps the only safeguard for shareholders included in the deal.

A Dell spokesman declined to comment on the letter.

In a separate letter to Dell shareholders, Michael Dell and Silver Lake have said they believe the change is "fair and reasonable" to the company's other shareholders, especially given the new offer's additional 10 cents per share for the stakeholders.

Michael Dell and Silver Lake said last week that their new offer represents their "best and final proposal." It increases the total amount they are willing to pay shareholders by about $150 million, raising the value of the proposed deal to about $24.6 billion.

The vote on the offer has been delayed a couple times and is now scheduled for Friday.

(Also see: Dell shareholders convene again to vote on founder's buyout offer)

Icahn and Southeastern have offered a more complicated alternative to Michael Dell's offer, but they first need to block that deal and then replace the company's board in a follow-up battle.

Michael Dell first offered to buyout his company earlier this year.

He says that he can turn around Dell by spending heavily to build better tablets while also diversifying into more profitable areas of technology, such as business software, data storage and consulting. Those changes likely will be tumultuous and temporarily lower Dell's earnings, an upheaval that Michael Dell contends will be more tolerable if the company no longer has to answer to other shareholders.

Dell shares fell 6 cents to $12.88 Monday before markets opened.

(Also see: Dell takeover battle: All you need to know)

Dell postpones meeting on buyout as more votes needed

Dell Inc on Thursday postponed a shareholder vote on CEO Michael Dell's $24.4 billion buyout offer, after he won 11th-hour backing from several large investors but still fell short of enough votes to seal the deal.

The meeting was called and then adjourned minutes later, after shareholders gathered at Dell's headquarters in Texas. Postponement of the vote until Wednesday buys time for Dell, the company's co-founder and chief executive, to win over naysayers for a deal that could be the largest buyout since the financial crisis.

Complicating matters, billionaire investor Carl Icahn, who has amassed an 8.7 percent stake in Dell, is leading a charge with major shareholder Southeastern Asset Management against the buyout with an offer of his own. He and others say Michael Dell's deal undervalues the world's No. 3 personal computer maker.

Investors are divided over Dell's prospects. Some are ready to cash out of a company increasingly vulnerable to a crumbling PC market. Dell has become a shadow of the company founded out of Michael Dell's dorm room in 1984, which rapidly grew into a leader in the global market and a model of innovation.

Others remain convinced the company can transform itself into a dominant provider of business computing services, under Dell's leadership or otherwise.

In the week leading up to Thursday's meeting, Icahn's team and Dell's special board committee, which supports the CEO's offer, flooded shareholders with letters and documents to argue their positions.

Vanguard and BlackRock Inc are now on board with the proposal, sources familiar with the matter told Reuters on Thursday.

Still, they said Michael Dell and private equity partner Silver Lake fell about 100 million shares short of the 735 million that they need for the buyout to pass.

A large chunk of non-votes - which count as "nays" - from mainly retail investors, helped account for the shortfall, several investors told Reuters.

Only 77 percent of eligible shares were voted as of Thursday, the Wall Street Journal cited people familiar with the matter as saying. Dell declined to comment on that ratio, which suggests a high number of abstentions.

Some arbitrage investment funds may also hold out hope that Michael Dell will bump up his offer price, they added on condition of anonymity. Arbitrageurs, who typically make short-term bets around the outcomes of deals and other major transactions, own roughly 350 million shares or 20 percent of the company's outstanding stock, one of the investors estimated.

Michael Dell may have to raise his $13.65-a-share offer to secure the deal, analysts and investors say. But other sources have said he and Silver Lake remain reluctant to pay more for a company that traded at about $10 before news of the buyout surfaced.

"The delayed vote may speak to the Silver Lake/Dell transaction not finding necessary support," said Topeka Capital Markets analyst Brian White. "A higher bid may be necessary to consummate this transaction."

Dell shares closed up 24 cents, or 1.9 percent, on Thursday, at $13.12 on the Nasdaq.

Unhappiness
It is unusual for corporations to adjourn shareholder meetings on such short notice, but governance experts say it can be done if the company bylaws allow it.

Over the next week, the board will encourage the apparently large number of shareholders that had not cast votes to support the deal, said mergers expert Brian Quinn, an associate professor at Boston College Law School.

"To encourage these votes to come out, they will likely also try to re-engage Silver Lake to seek out a higher price," he added.

Icahn was quick call the adjournment "unfortunate" and reiterate that he found Dell's offer too low.

"This delay reflects the unhappiness of Dell stockholders with the Michael Dell-Silver Lake offer, which we believe substantially undervalues the company," he said in a statement issued with Southeastern. "This is not the time for delay but the time to move Dell forward."

Vanguard and BlackRock had previously opposed the deal, but ultimately switched sides, a source said, requesting anonymity because the matter is not public.

Other investors previously seen as swing votes, such as State Street Corp, Bank of New York Mellon Corp and Invesco also voted in favor of the deal on the eve of the shareholders' meeting, the source said.

T. Rowe Price Group Inc, Highfields Capital Management, Pzena Investment Management and Yacktman Asset Management have previously voiced opposition to the deal. T. Rowe Price, which owns roughly 4 percent of Dell's stock, reiterated its opposition on Thursday to the deal.

State Street declined to comment. Vanguard declined to comment. Representatives of the investment firms did not respond to requests for comment.

Board member Alex Mandl, chairman of the special committee overseeing the buyout, set the new meeting date for Wednesday.

Under so-called majority-of-the-minority voting provisions, a majority of shares, excluding Michael Dell's roughly 16 percent stake, must be voted in favor for the buyout to go through.

Shareholder Ed Benson from San Antonio, one of the many retail investors that account for an estimated 10 to 15 percent of shares in the company, turned up in Round Rock on Thursday but had expected the meeting to be adjourned.

"It's very hard to acquire that many votes," said Benson, who supports the buyout proposal.

But travel agent Linda Bush, who commuted to the meeting from the area, disagrees.

"The majority of people I talked to didn't vote for it," she said. "We need to be paid more".

(Also see: Dell takeover battle: All you need to know)

Dell buyout vote still short despite crucial backers: Report

Several large shareholders including Vanguard Group Inc and BlackRock Inc voted in favor of Michael Dell and Silver Lake's deal to take PC maker Dell Inc private, but the proposal is still short of shareholder votes, a person familiar with the matter said.

Other big investors previously seen as swing votes, such as State Street Corp, Bank of New York Mellon Corp and Invesco also voted their shares in favor of the deal on Wednesday night, the eve of the shareholder meeting, the person said.

The deal still needed another 150 million shares to pass as of early Thursday morning, but votes were still coming in and the tally could change before voting ends, the person said, requesting anonymity because the matter is not public.

The proposed buyout needs about 735 million shareholder votes to pass.

Representatives of all the investment firms were not immediately available for comment.

Dell shareholders were set to gather in Texas on Thursday to vote on founder Michael Dell's $24.4 billion offer to take the company private, a deal that faces heavy opposition from activist Carl Icahn and other investors.

T.Rowe Price Group Inc, Highfields Capital Management, Pzena Investment Management and Yacktman Asset Management are among the shareholders that have voiced opposition to a deal they say undervalues the company.

(Also see: Dell takeover battle: All you need to know)