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Carl Icahn Will Have To Wait Until October/Never For His Dell Proxy Fight

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It's useful to be reminded every now and then that shareholders don't really "own" corporations and they certainly don't run them. Whatever you think of Carl Icahn's self-funded, mildly loony plan to do a leveraged-recap-via-tender-offer of Dell, his basic argument, that Dell shareholders should be able to vote to (1) do that, (2) sell the company to its founder, or (3) none of the above, in some straightforward up-or-down way, had a certain real appeal. I mean, it's their company, let them decide to sell 100% of it for $13.88ish or 80% of it for $14ish or 0% of it for ... I see $13.82ish1 ... or some intermediate pair of numbers. But, nope:

A Delaware judge on Friday denied a request by Carl Icahn to reschedule Dell Inc.‘s annual meeting, dealing a blow to the activist investor’s fight against the deal.

Throughout Friday’s hearing, Chancellor Leo Strine of Delaware’s Court of Chancery defended the work by a special committee of the company’s board, saying that its efforts to secure a higher offer from Michael S. Dell and his partner, the investment firm Silver Lake, benefited shareholders. ... The move by Chancellor Strine means that Mr. Dell’s takeover bid will likely proceed to a shareholder vote as scheduled on Sept 12.

Meanwhile the annual meeting is scheduled for October 17, though Icahn today filed a pretty optimistic proxy statement for his slate of directors saying that the meeting would be held "on [ · ], 2013, at 9:00 a.m. Central Daylight Time, at the Dell Round Rock Campus, Building No. 2, Houston-Dallas conference room," which is sort of an amazing piece of presumption, like, hey, Dell, hope you don't mind but I've booked the Houston-Dallas conference room for 9am on [ · ], you weren't using it that day were you?

Obviously Icahn wanted that [ · ] to be September 12, at the same time as the merger vote, but that was not to be. He had a decent case: the last annual meeting was July 13, 2012, and Delaware has a weird law that says that, if Dell doesn't hold this year's annual meeting with 13 months - by August 13, i.e. this past Tuesday - then Icahn can sue. But it doesn't say he'll win, and he didn't.2

The other thing Icahn wanted was to stop Dell from lowering the voting standards to approve the deal, from "a majority of the non-Michael Dell shares that exist" to "a majority of the non-Michael Dell shares that actually vote." The theory here was always pretty squishy; mostly it was just a lot of shouting about how Dell's board was sandbagging the company's performance, which I guess was undermined a bit yesterday when Dell's earnings beat expectations.

But basically that theory works if you can convince a judge that Dell's board doesn't care about shareholder value and is nefariously tricking shareholders in order to corruptly favor its CEO's buyout plan. Icahn could not, which is probably fair since it seems unlikely to be true. They clearly care, they worked hard, they reviewed many PowerPoint decks, they dotted and crossed the appropriate letters, etc. And they came to the conclusion that Dell should be sold to Michael Dell for $13.65, $13.75, and eventually $13.88. And now they get to do that!

I mean, not entirely: they still need to get shareholders to vote for it, though they no longer need to get a majority of the non-Michael Dell shareholders to vote for it, because that was too hard. And they don't need to put all the shareholders' options before them: if you want the Icahn deal, you could vote no on the Michael Dell deal on September 12, but then you've got to wait until October 17 to vote for Icahn's slate of directors, and then they have to go finalize the someone rickety tender offer deal, and a lot can go wrong in the interim. There's no particular guarantee that, after all that, the tender would actually happen.3 You could be left holding Dell. And the board is pretty sure that nobody wants that. (Except Michael Dell obvs.) So they're going to tilt the scales a bit to make sure that shareholders do what the board thinks is best for them.

Judge Rules Against Icahn’s Efforts to Reschedule Dell Meeting [DealBook]
Icahn's bid to fast-track key Dell lawsuit fails [Reuters]
Icahn Enterprises / Southeastern Asset Management Dell Preliminary Proxy [EDGAR]

1.Up from $13.70ish before 1 o'clock, when the news broke that Icahn lost in court. I'm the sort of person who instinctively anthropomorphizes that as, like, "Dell shareholders are happy that he lost and the deal will go through," though of course it's a story of marginal buyers and reasonably steep demand curves. Obviously some Dell shareholders are sad and think that Dell would be worth more than $13.70, or $13.82, or $13.88, or $14, if Icahn had won.

2.It really is a weird law since, as I frequently remind Bess, anyone can sue anyone for anything. Anyway here's the relevant bit of DGCL section 211(c):

If there be a failure to hold the annual meeting ... for a period of 13 months after ... its last annual meeting ..., the Court of Chancery may summarily order a meeting to be held upon the application of any stockholder or director. The shares of stock represented at such meeting, either in person or by proxy, and entitled to vote thereat, shall constitute a quorum for the purpose of such meeting, notwithstanding any provision of the certificate of incorporation or bylaws to the contrary. The Court of Chancery may issue such orders as may be appropriate, including, without limitation, orders designating the time and place of such meeting, the record date or dates for determination of stockholders entitled to notice of the meeting and to vote thereat, and the form of notice of such meeting.

But as Ronald Barusch explains:

First, a lawsuit to force an annual meeting is not “ripe” until 13 months have passed since the last annual meeting, which was held on July 13 last year. And even if such an action were to be brought on August 14, the annual meeting could not be held for a couple of months after it was ordered because of the need to prepare, clear with the SEC and mail proxy material. By then a buyout vote would happen.

That was Chancellor Strine's conclusion too; he said today that the scheduled October 17 date "is probably within the time the court itself might set" for the annual meeting.

3.The bold/loony move here would be for Icahn to take the $4.7 billion he and Jefferies have committed to financing the Dell tender offer and just launch his own tender offer on Monday at $14. Presumably anyone who would vote for the Michael Dell deal at $13.88 should want to tender at $14, so he could get another 21% of the shares, at least many of which are now in the Michael Dell camp, and probably turn the vote around. Then have his directors run on a platform of "we are going to buy all those shares from Icahn et al. at $14 and take a loan from them for the amount instead," so that Icahn and Jefferies can get the seniority they want, "and also do our own additional tender for the amount we planned to finance with Dell's cash." Which is a little unorthodox but, whatever, if the shareholders approve it you could imagine it working. Obviously a lot of risks here, one of which is that you buy 20% of the shares, still lose the merger vote, and have to sell them right back at a 12-cents-a-share loss (on 360mm shares).