Michael S. Dell has succeeded in changing the voting rules for his proposed takeover of the computer maker that bears his name, bringing him much closer to victory. But his chief nemesis, the billionaire Carl C. Icahn, isn’t giving up.
The question is whether the latest moves by the activist investor shore up his assault as the odds stack against him.
On Monday, Mr. Icahn disclosed that he bought an additional four million shares in Dell late last week, raising his stake to roughly 9 percent.
Mr. Icahn has also filed suit in Delaware’s Court of Chancery, seeking to prevent Dell’s board from altering the rules of the proposed leveraged buyout. The lawsuit was filed a day before the special committee agreed to relax the voting standards, letting Mr. Dell and his partner, the investment firm Silver Lake, win by simply garnering a majority of shares voted at the meeting instead of all independent shares.
In exchange, Mr. Dell and Silver Lake effectively raised the price of their bid to $ 13.88 a share, through both a new offer of $ 13.75 and a promise to pay a special dividend of 13 cents a share.
By buying the additional shares, Mr. Icahn has cemented himself as Dell’s biggest outside investor with an 8.9 percent stake, surpassed only by the company’s eponymous founder and his 15.7 percent stake. He still has a major ally in Southeastern Asset Management, which owns about 4 percent.
But the Dell special committee’s move greatly diminished Mr. Icahn’s power to block the deal. The old voting standard counted shares not voted as no votes, creating a near-insurmountable barrier given Mr. Icahn and Southeastern’s combined stake. Even though the buyers were slightly ahead in terms of shares actually voted, the more than 300 million shares that were not cast were enough to block the deal.
By keeping the standard to just the shares that were voted, the new rules drastically alter that calculus. So, too, has the newly raised bid, which drew in reluctant big shareholders like Franklin Mutual Advisers and the hedge fund Pentwater Capital.
That’s why Mr. Icahn has pressed forward with his lawsuit, which is trying to roll back the changes. In a legal brief supporting the lawsuit, lawyers for Mr. Icahn argued that the Dell board is violating Section 211 of the Delaware General Corporation Law by not having its annual meeting within 13 months of the previous one, which was held last July.
Part of the compromise between the Dell special committee and the buyers involved pushing back a special meeting for the deal to Sept. 12 and moving the record date — the day investors need to have held shares to qualify for the vote — to Aug. 13. And the company’s annual meeting was scheduled for Oct. 17.
“The directors have attempted to guarantee the success of Mr. Dell’s merger over the opposition of the stockholders and the commands of Delaware law,” Mr. Icahn’s legal team wrote. “There is nothing in Delaware statutory or case law that supports the board’s view of its role or the actions it has taken here.”
But experts say that the Delaware law is ambiguously worded. Here’s the relevant language from the statute:
If there be a failure to hold the annual meeting or to take action by written consent to elect directors in lieu of an annual meeting for a period of 30 days after the date designated for the annual meeting, or if no date has been designated, for a period of 13 months after the latest to occur of the organization of the corporation, its last annual meeting or the last action by written consent to elect directors in lieu of an annual meeting, the Court of Chancery may summarily order a meeting to be held upon the application of any stockholder or director.
In other words, legal experts say, if an annual meeting isn’t held within 13 months of the last one, shareholders can ask the court to mandate one. But that’s as far as the requirements go.
Moreover, organizing a meeting would take time even after the court orders one to be held, probably several weeks. Advisers to the Dell special committee have told the directors that even if Mr. Icahn were to prevail, the annual meeting probably couldn’t be held before mid- to late September anyway.
Mr. Icahn’s lawyers acknowledged in their brief that time is playing a role in ordering an annual meeting as soon as possible. The financing backing the activist’s competing proposal, a major stock buyback that he would sponsor, expires on Sept. 30.
That said, the brief’s main thrust is that the Dell special committee shortchanged investors by not negotiating more toughly with Mr. Dell. The biggest way to have done that, according to Mr. Icahn, was by presenting shareholders with the choice of either the leveraged buyout or the stock buyback plan on the same day. (Never mind that the board has long been wary of the latter option as the best way to get the most value for investors.)
Here’s more from Mr. Icahn’s brief:
“The first question before the court on the merits 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 until over 60 days after it is required to be held in order to avoid giving the stockholders the opportunity to decide for themselves which transaction they want.”
It’s possible that a Delaware judge could rule in Mr. Icahn’s favor by either overturning the change in voting rules or compelling an annual meeting to be held sooner than October. That could thrust Mr. Dell’s takeover bid once more into the murk of uncertainty.
Both the buyers and the Dell special committee are betting that the court will see things their way and keep the status quo, which would probably lead to the buyout succeeding. They point to previous words from Chancellor Leo E. Strine Jr. that praised the special committee’s work in negotiating with Mr. Dell.
More clarity could come soon after a hearing on Mr. Icahn’s lawsuit, which is scheduled for Monday afternoon.