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Dell Pretty Sure That This Time It's Figured Out This Merger Thing

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Did you fly to Round Rock today to vote on Michael Dell and Silver Lake's buyout of Dell? No, you did not, even I can't keep up that fiction any more. By mycount this is the third same-day cancellation of the special meeting but everyone's figured out the game by now. Dell will eventually actually hold a shareholder meeting, but no one will come, which will be awkward except not really because nobody really comes anyway. The proxies come, that's what matters.

Anyway today's cancellation was because Dell signed a whole new merger agreement, under which:

  • Dell shareholders will get $13.75, plus a 13 cent special dividend, plus the regular 8 cent dividend they were maybe going to get anyway;
  • the vote will be moved to September 12 MAYBE REALLY THIS TIME and the record date to August 13; and
  • the required vote will now be a majority of the unaffiliated shares actually voted, rather than a majority of all unaffiliated shares (plus a majority of all shares, voting or otherwise, including Michael Dell's), which I guess Dell and the buyout group thinks will be pretty achievable1 though it would be super embarrassing if they miss again.

The buyout group had offered to do this deal for $13.75; the board had countered with $14; and they split the difference at a price of roughly $13.88 depending on how you count.2 Also everyone issued crazy press releases. First Dell:

Alex Mandl, Chairman of the Special Committee, said ... “We believe modifying the voting standard is in the best interests of Dell shareholders, both because it has enabled us to secure substantial additional value and because it provides a level playing field for the decision facing shareholders. 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. 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. Accordingly, we have changed the voting standard to require that the going-private transaction receive the approval of a majority of the disinterested shares that are actually voted. By resetting the record date and providing abundant notice of the new meeting we are ensuring that all disinterested shareholders, including those who have acquired their shares since June 3, have ample opportunity to vote for or against the transaction. ...”

That logic is pretty elusive no? Because the "flaky" Icahn recap proposal exists, I guess this says, it's impossible to interpret abstentions as no votes (unlike before?), and so the board is going to ignore them. Maybe? An alternative exists which is to actually ask shareholders to vote on whether they prefer (1) the new buyout deal, (2) the flaky recap, or (3) none of the above. And Icahn and Southeastern are pushing exactly that alternative, among many others, in their vague all-fronts attack. Here is the non-crazy part of Southeastern's crazy press release:

Alex Mandl, Chairman of the Special Committee, today stated that the change to the voting standard was justified because of the emergence of an alternative to the Michael Dell/Silver Lake proposal. We are amazed at this justification. The Special Committee is using our alternative proposal, which they have not meaningfully pursued despite the opportunity to create a better outcome for all stockholders, to justify lowering the voting requirement for Michael Dell and Silver Lake.

Endorsed! On the other hand this part of it is silly:

The Special Committee has simply agreed to a modest distribution of company cash – in the form of a regularly scheduled dividend and a special dividend funded by the ongoing operations of the business – cash that would continue to be owned by stockholders if Dell were to remain a public company. We think that paying stockholders with their own money is financial engineering, NOT new value.

Well ... no? Before, Silver Lake et al. were getting one company, and you were getting $13.65 in cash for it. Now they are getting one company, and you are getting $13.88 or so in cash for it. Either way you're giving up the company; either way there is some boring sense in which you are getting paid in part with your own money; but those semantics are unrelated to the dollar amount you are getting, which is what you care about.

Still why pay the extra 13 cents as a dividend rather than just a price increase? I don't know; presumably some part of it has to do with letting Silver Lake - who are, after all, in the business of finding and negotiating buyouts - preserve credibility that their $13.75 "best and final proposal" was really best and final. They're still paying $13.75; it's just that Dell is paying shareholders an extra $0.13 out of its own pockets, just before handing those pockets over to Silver Lake. Also apparently Michael Dell is funding the dividend by "effectively agree[ing] to value his 16 percent stake at less than $13.36 a share," so Silver Lake really hasn't given anything here. There is a financial engineering element to it, though the engineering doesn't seem relevant to shareholders.

Icahn's crazy press release is perhaps the most sensible of them all, and isn't even in all caps:

In every war there are many battles. We are pleased today to have won yet another battle, but the war regarding Dell is far from over. Through its actions today, the Special Committee has finally acknowledged publicly what we have been saying all along – that Michael Dell’s offer substantially undervalues the company. Obviously Mr. Dell’s previous characterization of his offer as “best and final” was neither. However, we are not satisfied – we believe that an increase of a mere 13 cents is an insult to shareholders. And promising shareholders an additional 8-cent dividend that we were already entitled to, and pretending that it is some sort of gift, is a further slap in the face. We also continue to believe that the Special Committee is improperly putting its thumb on the scales in favor of Mr. Dell’s offer by changing the voting rules midstream and by refusing to hold the Special Meeting and the Annual Meeting on the same date and time – the only mechanism that would give shareholders a true choice. As such, we will continue to vigorously pursue our lawsuit in the Delaware Court of Chancery.

With the special meeting postponed to September, and with a new proxy mailing in the works, Icahn would seem to have a nonzero chance of convincing a court that it should make Dell vote on his proxy fight and Silver Lake's buyout at the same time. Which would be fun for him, at least, though not necessarily a vote he'd win. But that press release hints that that'd be okay. He's already tallying up the battles he's won: forcing three postponements of the vote, lending himself some money for his tender offer, and most importantly making what seems to be a profit on his Dell efforts. A small one, but that plus the battle-winning is probably enough for him.

Dell 14A [EDGAR]
Southeastern 14A [EDGAR]
Icahn 14A [EDGAR]
Dell and Buyers Reach Compromise on Takeover Bid [DealBook]

1.Though maybe not? The assumption is that the record date change will help the buyout, since everyone who's bought since the old June 3 record date has a basis of $13.74 or lower, and everyone who's bought in the last week or so has a basis below $13, and is in any case probably an arb and should be willing to take a quick sale for call it $13.88.

2.Do you count the $0.08 third quarter regular dividend? The record date for that dividend is normally in late September, and it's paid in October. I would have guessed that if they'd gotten the vote two weeks ago it probably wouldn't have taken them two months to close. But with a mid-September vote, and a financing that's probably hard to pull off until you've gotten the vote, those eight cents were more or less going to shareholders anyway.