The Deal: Change to Voting on Dell Buyout May Stop Icahn Cold

NEW YORK (TheStreet) -- Michael Dell and Silver Lake Partner's push to clear the shareholder vote for their $24 billion buyout of Dell (DELL) may fall short of the special committee's threshold, but looks like the death knell for the Icahn opposition.

The Silver Lake group raised their offer from $13.65 to $13.75 with the condition that the vote threshold for the majority of non-affiliated shareholders to the buyout include only those who vote. The merger agreement provided that shareholders who abstain from voting be considered non-votes, a common provision.

On the original July 18 vote date -- that had been adjourned to July 24 so the buyer group could continue their solicitation -- about 77% of the eligible vote showed up. According to sources following the deal, that vote was short by about 170 million shares of the roughly 740 million needed to approve the Silver Lake deal.

The change to the vote structure that would eliminates the non-votes as votes against gives the buyout group an edge over that shortfall -- as might the additional 10 cents per share.

But it's the movement of the record date that could push the deal through. Following the June 3 record date for the shareholder vote, some 850 million shares of Dell traded. Given that a new record date would have to occur at least 10 days before a new vote date, that volume, given a July 10 cut off, still represents 540 million shares. In either case, those purchases of Dell were made at prices of around $13.30, below the $13.65 buyout price before the "best and final" bump.

The best and final language is not encouraging, but if the record date is moved up, the likelihood the vote succeeds is greatly increased.

The special committee could reject the change to the structure of the majority vote. Reports suggest the committee is looking for a $14 price to alter the voting terms of the merger agreement.

The committee has been holding their ground and it would be unfortunate if they caved on the terms of the merger agreement, as opposed to letting shareholders make their votes, but it sounds like their price for doing so is $14 per share, a risk arbitrageur said. That said, the special committee, which would certainly be sued if it changes the voting provision, probably is in a strong position, the arb said. The Delaware law is unclear regarding eliminating the provision that an abstaining vote automatically counts as a vote against the deal, he said. The special committee might be on reliable ground based on the notion that shareholders who abstain from voting cannot be disenfranchised.

But altering a shareholder vote in Delaware always has litigation risks.Still, the Icahn proposal seems increasingly troubled.

Icahn's formal response to the Dell revised offer of $13.75 was still forthcoming, although he did send out a tweet on his official twitter feed that read: "All would be swell at Dell if Michael and the board bid farewell."

If the Silver Lake group cannot meet the special committee at $14 per share, likely with Michael Dell and/ or Microsoft Corp. absorbing the increased cost, and Dell loses the vote, the company will certainly respond with an alternative to undercut the Icahn solicitation to replace board members. That may be a stock repurchase and possibly a "beefed up" director slate, but it will beat an Icahn slate at an annual meeting that is not backed by a CEO, an arb said.

A share buyback program might not support Dell shares any higher than $10, but that matches on a pro-rata basis roughly what the Icahn proposal delivers in cash to tendering shareholders, who in that scenario retain some stub equity.

Shares of Dell traded Wednesday for $12.95 at a spread of 85 cents, or 6.1%, to the revised Silver Lake buyout.

-- Written by Scott Stuart in New York

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