As each week goes by, the situation at Dell Inc. (NASDAQ:DELL) looks more and more like a repeat of the Titanic. There’s an iceberg ahead, but nobody seems capable of doing anything about it. As Michael Dell and Carl Icahn struggle for control of this once-great company, ordinary shareholders’ interests are increasingly being left by the wayside. As a result, Dell stock has been slowly losing altitude.
It would be wrong to say there’s no hope of a successful buyout. The original offer made by Michael Dell and Silver Lake — to buy the company for $13.65 a share — is still on the table. Moreover, the two parties have offered to raise their bid to $13.75 per share, if the special committee overseeing the proposed transaction agrees to change the voting rules to exclude non-votes, rather than counting them as “no” votes.
Unfortunately, the original proposal does not seem to have enough shareholder support to go through, while the revised proposal is unlikely to make it to a vote, as the special committee is worried that it will seem unfair to change the rules. Yet the “fair” result is likely to be the worst one for shareholders: a stalemate that prevents any “value-unlocking” activity and leads to a big decline in Dell Inc. (NASDAQ:DELL) stock.
Earlier this month, shareholders were supposed to vote on the original $13.65 buyout proposal from Michael Dell and Silver Lake. However, with shareholders split roughly 50/50 for and against the transaction, Dell Inc. (NASDAQ:DELL) and Silver Lake realized that the buyout proposal was likely to fail. The problem was language in the original agreement that counted non-votes as votes against the buyout proposal.
As a result, Dell Inc. (NASDAQ:DELL) and Silver Lake offered to raise their bid from their previous “best and final offer” of $13.65 to $13.75, as long as the special committee overseeing the process agrees to change the voting rules so that non-votes are excluded (i.e., counted as abstentions). Both the price increase and the proposed rule change were intended to smooth the way for Dell to go private. The vote was then rescheduled for this Friday.
Not surprisingly, Carl Icahn of Icahn Enterprises LP (NASDAQ:IEP) and his supporters — who have vehemently opposed the Dell buyout for months — are loudly protesting the proposed rule change. (After all, it would presumably end their hopes of gaining control of Dell.) Pressure from shareholders who oppose the buyout will make it difficult or impossible for the Dell Inc. (NASDAQ:DELL) special committee to change the voting rules, even if it would make sense to do so.
Plenty of downside
While Icahn Enterprises LP (NASDAQ:IEP) and his group believe that Dell Inc. (NASDAQ:DELL)l could increase shareholder value by changing Dell’s capital structure, it’s hard to imagine a scenario where Icahn would be able to carry out those plans. Michael Dell has no intention of leaving the company if the go-private transaction fails.