A good public-relations rule of thumb is that, when you and your nemesis sign an agreement putting aside your differences, you should probably also agree on how you'll announce your new friendship to the world. What you don't want to do is, for instance, to sign a standstill agreement with a potential buyer in your strategic process, and announce that standstill agreement one morning, and then a few hours later have the potential buyer put out his own announcement taking issue with your characterization. Another rule of thumb might be, keep Carl Icahn away from your strategic process if at all possible.
This morning Dell sort of blandly announced that Carl Icahn had agreed not to buy more than 10% of Dell's shares, or enter into agreements with other shareholders that would get him above 15%. And this afternoon Icahn announced that that agreement meant nothing and nobody should give it a second thought:
Carl C. Icahn today announced that he and his affiliates have entered into an agreement with Dell Inc. that will facilitate discussions among Dell shareholders free of the legal restrictions under Delaware law.
Mr. Icahn noted: “Like other large Dell shareholders, I continue to believe that the February 5 merger agreement to take Dell private undervalues Dell and hurts shareholders. My affiliates and I expect to engage in meaningful discussions with other Dell shareholders, discussions that we believe will help to facilitate alternatives to the existing transaction with Michael Dell. In addition, I want to make it very clear that I have retained the absolute right to conduct a proxy fight at Dell. In fact, I have refused to take a $25 million expense reimbursement from Dell as the price of giving up a proxy fight. Dell shareholders are entitled to a free exchange of ideas as they make this important decision and that includes the right of shareholders to evaluate all alternatives. We look forward to speaking with Dell shareholders in the days and weeks ahead."
Here is Dell's characterization of that same agreement:
Mr. Icahn and affiliated entities have agreed not to make purchases that would cause them to own more than 10% of Dell’s shares or enter into agreements with other shareholders who, together with the Icahn entities, would collectively own in excess of 15% of Dell’s shares. Dell has also granted the Icahn entities a limited waiver under Section 203 of the Delaware General Corporation Law which facilitates Mr. Icahn’s ability to engage with other Dell stockholders.
I ... don't really get it? DGCL § 203, as the connoisseurs call it, doesn't restrict the "free exchange of ideas," or even really proxy fights. It's an anti-takeover law intended to prevent people from buying up big stakes in public companies and then proposing (and voting for) unfair-to-public-shareholder mergers. It says, roughly, that, unless the board gives him a waiver:
- if Icahn acquires 15% or more of Dell's stock, or enters into voting agreements with anyone so that his combined bloc totals more than 15%,
- then he can't acquire Dell via merger for three years (or do various other transactions with Dell, including relevantly increasing his share of Dell by rolling into the stub equity of a Blackstone deal),
- unless he proposes his merger in response to another, board-approved merger proposal1
(or meets some other exceptions, including notably getting two-thirds of the non-Icahn shares to vote for him).
Those following the story will note that there is another, board-approved merger proposal for Dell. So Icahn can basically do what he wants? Even if he gets above 15% first? So I'm not sure what he's getting from the board's "limited waiver" of section 203, particularly since he's agreed not to go above 15% so DGCL § 203 wouldn't apply to him anyway. Whatever he's getting, I'm pretty sure it's not the right to "free expression."
On the other hand, what is he giving up? Given his disclosed 4.6% of Dell, this agreement prevents him from buying more than about another $1.3 billion of Dell stock in the open market, and ... I suppose he might have been tempted? People spent like $130 million today buying Dell stock, at an average price of $14.06, so I guess there's a lot of confidence that Dell will ultimately sell a lot higher than the only firm offer on the table, for $13.65. And I suppose if Icahn is ultimately able to make a fully financed offer at ~$15, every share he buys in the market at ~$14 helps. But he signed a confidentiality agreement with Dell last month and is presumably getting nonpublic due diligence materials; it's hard to imagine that his lawyers would actually let him be out stealthily buying in the market while also doing due diligence.
He also gives up some ability to enter into agreements with other shareholders, like still-disgruntled Southeastern Asset Management. Given Icahn's 4.6% and Southeastern's 8.4%, they could still team up but couldn't add T. Rowe or various other big disgruntled shareholders. That doesn't seem like much of a big deal, either; several big shareholders have said explicitly that they'll oppose the $13.65 offer, and have said only slightly less explicitly that they'll support pretty much any offer that lets them roll over their equity stake. The main disadvantage, I guess, is that if the big shareholders can't enter agreements with Icahn maybe they will with Blackstone?
Mostly, though, this seems like sort of a nothing? As far as I can tell this agreement makes the mostly-theoretical possibility of an Icahn bid just a bit more theoretical, and gives him roughly nothing except the ability to speak his mind. Which he had already, but it never hurts to be reminded. He's already putting it to good use.
1.That's 203(b)(6), which says that the restrictions don't apply if "The business combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (i) [is a merger, etc.]; (ii) [is with a non-15% owner or someone - like Michael Dell - who became a 15% owner with board approval or before public listing]; and (iii) is approved or not opposed by a majority of the members of the board of directors then in office ...."