Icahn seeks to fast-track his Dell lawsuit

Activist investor Carl Icahn will ask a Delaware court on Friday to fast-track his lawsuit against Dell Inc, a key thrust in his months-long effort to derail CEO Michael Dell's controversial $24.8 billion offer to buy and take private the No. 3 PC maker.

Icahn is trying to accelerate the timeframe on his lawsuit, hoping to head off a September 12 special shareholders' vote on a takeover proposal that the hedge fund billionaire and other major investors argue severely undervalues the company.

(Also see: Icahn sues Dell in latest attempt to foil buyout)

The conflict adds more uncertainty to a company that once ruled the global PC market, but is now trying to move into the relatively unfamiliar field of enterprise computing services as mobile devices pummel sales of computers and laptops.

Icahn, who wants to install his own directors on the board and oust the founding CEO, argues that Dell Inc and a special committee overseeing the takeover are short-changing investors.

Dell marks the latest board skirmish for the 77-year old New York investor, who specializes in buying stakes in companies in flux and agitating for change. He has recently had run-ins with management at Biogen and Transocean Ltd.

Icahn holds 8.9 percent of Dell Inc, making him the second-largest shareholder behind Michael Dell, with about 16 percent. He wants the company to convene an annual general meeting at the same time it convenes the special vote, since it guarantees a best and final offer from the CEO and his partner, Silver Lake.

That would also delay the special vote, buying Icahn time to nominate his own slate of board directors before a shareholder decision on the buyout offer is taken.

On its part, Dell argues its special committee has done everything it can to safeguard shareholders' interests, and has said the decision to hold the annual general meeting on October 17 means it will occur swiftly after the special vote.

Meanwhile, the company's fundamentals continue to deteriorate. On Thursday, it reported a 72 percent plunge in second-quarter earnings, reflecting the worsening plight of its PC business as well as the questions surrounding its future as a public company.

Platonic guardians?

Icahn's legal team said in court papers that the question before the court is "whether our law will allow these directors to act as Platonic guardians, repeatedly refusing to take 'no' for an answer on the merger, stacking the cards in its favor and deliberately postponing the annual meeting."

Icahn also wants Dell Inc to reverse its decision to nullify abstentions from the buyout offer's vote count, reverting to treating them as opposing votes. Such a move is negative for the CEO's camp, which estimates almost a quarter of eligible shares will abstain from voting.

Friday's courtroom drama is a facet of a months-long battle waged between Michael Dell, who wants to overhaul the company he created in college in 1984 away from the investor spotlight, and major shareholders like Southeastern Asset Management who want a higher price.

The CEO and Silver Lake have already sweetened their offer. On August 2, they delivered what they called their final offer, a special dividend of 13 cents a share on top of a 10-cent increase in the sale price to $13.75 per share, worth $24.8 billion in all.

Leo Strine, the judge on the case, has already considered requests to expedite class actions over the Dell buyout. In a hearing on June 19, he found the board had done enough to protect shareholders. But things have changed since, including the decision not to take abstentions into account.

Strine had cited that as a protection for shareholders.

Also, Dell has now gone 13 months without an annual meeting, which under Delaware law gives shareholders a right to sue to force a meeting. That gave Icahn the opening to ask Strine to move the two meetings to the same day.

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)