Dell's board likes the money but doesn't want to change the voting rules.
Just weeks ago, Michael Dell and his allies presented a buyout offer of $24.6 billion, or $13.75 per share, up from the original $24.4 billion, or $13.65 per share. However the raised offer had a catch: the voting rules needed to be changed so that non-voting shares wouldn't count against the overall vote. As it stands now, non-voting essentially means a vote against the buyout, and Michael Dell said that wasn't fair.
One of the problems the buyout faces is that investors who purchased stock after June 3 cannot vote, thus they automatically fall into the "no" column. The agreement Michael Dell signed back in February required the majority of all outstanding shares – except for Michael Dell's nearly 16 percent in the company – to approve the deal. Thus shareholders who don't vote are automatically deemed in opposition.
But Dell's board has rejected the new offer anyway despite the higher payout, and instead provided a counteroffer that would extend the voting period for a third time so that a bigger pool of shareholders can cast ballots. In other words, the board likes the smell of more money but isn't willing to change the rules. As it stands now, non-voting shares still count against the overall buyout vote, but the board is now willing to allow investors who bought shares after June 3 into the voting pool.
"The Committee is not prepared to accept your proposal. We are, however, willing to establish a new record date for a vote on a $13.75 per share transaction under the existing voting standard," the board told Michael Dell. "A new record date would enable the many shareholders who bought their shares after June 3, 2013 to vote on the transaction while giving all shareholders more time to reflect on where their best interests lie in light of the improved offer."
Meanwhile, the board said it's prepared to proceed with a vote on the existing $13.65 per share transaction at the Special Meeting to be reconvened on August 2 if Michael Dell and his partners do not accept their counteroffer.
Just weeks ago, Michael Dell sent a public letter directly to the company's board, saying that Dell needs to transform, and to do it quickly. But he also said that the current offer is "our best and final offer" meaning the current CEO and his partners have no additional room for negotiation.
"I believe this offer is in the best interests of the company and our shareholders," he said. "Certain other parties have been proposing alternatives such as leveraged recapitalizations, sales of assets and other steps that I believe would be destructive to the company and that I do not and will not support. The decision is now yours. I am at peace either way and I will honor your decision."
Two of Dell's largest shareholders, billionaire Carl Icahn and investment firm Southeastern Asset Management, want Michael Dell out of the picture. They also want an entirely new board that will pursue different alternatives. They wrote a letter to stockholders on Wednesday, saying that enough is enough.
"The stockholders have spoken – and they do not want to be frozen out by Michael Dell/Silver Lake," the letter stated. "Let the vote happen on Friday. Michael Dell has said he is 'at peace either way'. We are glad to hear it! It is time to let the proposed freeze-out merger die."
Michael Dell estimated that around 27 percent of Dell Inc.'s outstanding shares haven't voted as of last week. Under the current rules, that's all considered as opposed to the buyout deal.