Michael Dell raises the bid for his company, but only if the board changes its shareholder voting rules

A higher offer? Not so fast.
A higher offer? Not so fast.
Image: AP Photo/Alexander F. Yuan
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UPDATED 3:05 PM EST: The Michael Dell buyer group changed the deadline for the board to respond to its new offer to Aug. 2.

Michael Dell finally blinked—sort of. He and private equity firm Silver Lake have raised their bid for PC maker Dell by 10 cents a share to $13.75. As a result, the company postponed the shareholder vote on the deal for a second time, moving it from today to Aug. 2. But the higher offer is not a sure thing.

Why? Because Michael Dell and Silver Lake said their higher bid was contingent upon changing the standard of getting the deal approved. In conjunction with the higher bid, the Dell buyout group also asked that the company lower the threshold for approving the deal to a majority of the votes cast, versus the current system which requires a majority of total shares. Investors who hold shares don’t have to cast a ballot (and often don’t), and non-votes are currently counted as ballots against the transaction.

On July 18, the last time Dell investors were scheduled to vote on the deal, the buyout group got a decent number of yes votes but not enough to approve the acquisition. Votes representing about 23% of outstanding shares were not cast, and so they counted as no votes.

The Michael Dell group says it’s a fair and reasonable request, given the increased offer. The higher bid expires at 6pm today if the Dell special committee doesn’t agree to the change. “There is simply no rational basis for shares that are not voted to count as votes against the merger agreement,” the buyout group said in a letter to Dell’s board.

It’s unusual for a buyer to ask for a change in the deal approval threshold, especially this late in the game. Also, a $0.10 bump isn’t so big that the board would consider it compelling enough to approve such a change.

Also, the board still has to contend with some of Dell’s largest shareholders, activist investor Carl Icahn and Southeastern Asset Management, which are against the Michael Dell deal and have proposed their own transaction involving a dividend and recapitalization. That offer also carries risks.

If the board frowns upon changing the shareholder voting rules, the higher offer from Michael Dell and Silver Lake could fall flat.