Mergers
& Acquisitions
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Tulane Business Forum
Adviser on Dell Buyout
Questions a Tumultuous Process
By
MICHAEL J. DE LA MERCED
March 27,
2014, 11:33 am
NEW ORLEANS — By the time the
sale of
Dell Inc. to its namesake founder was completed last October, the
computer company’s board felt like it had been through hell.
Months later, at the Tulane
Corporate Law Institute here, one of the advisers to the Dell
directors pondered whether the process — one where dissident investors
led by
Carl C. Icahn nearly derailed the transaction — needed to be so
tough.
Jeffrey J. Rosen, a partner at
the law firm Debevoise & Plimpton and a counsel to independent members
of the Dell board, recounted the numerous steps that directors took to
ensure the integrity of their deliberations.
The board ran an unusually open
go-shop process that allowed prospective alternative buyers make
takeover proposals.
Michael S. Dell, the company’s founder and biggest individual
shareholder, agreed to neutralize his shares. And
JPMorgan Chase, a financial adviser to the independent directors,
agreed not to provide financing to Mr. Dell or his partner, the
investment firm Silver Lake.
But the board wasn’t prepared for
the vigorous challenge presented by Mr. Icahn and the asset management
firm Southeastern Asset Management. And the measures that the board
had taken weren’t enough to convince many in the market, Mr. Rosen
admitted.
It became readily apparent by the
summer that the Dell board was facing an uphill battle. Independent
directors met with a number of the company’s investors and came in for
what Mr. Rosen called “brutal” discussions. Some skeptical
shareholders even accused the directors of lying about their
intentions to run a fair process.
“I don’t think directors are
prepared for the level of shareholder interaction required in this new
era,” he said.
Later on, the board’s decision to
base success on winning over a majority of shareholders not named
Michael S. Dell posed a problem as well. Though the board initially
decided that a majority of all independent shares needed to support
the deal, the persistent challenge of Mr. Icahn and Southeastern made
that standard impossible.
Directors eventually changed the
rules so that a majority of independent shares actually voted would
carry the day, in exchange for a higher bid from Mr. Dell and Silver
Lake. The move drew criticism all the same.
The company sold itself for
nearly $25 billion. Mr. Rosen conceded that the process could have
been run better — but wasn’t sure what more could have been done.
“How much should a board do to
increase the chances of improving an already good deal?” he asked.
Other panelists generally praised
the Dell board for its handling of the transaction. To Eileen Nugent,
a partner at Skadden, Arps, Slate, Meagher & Flom, the process checked
off a lot of boxes that could satisfy corporate governance watchdogs.
But that set-up was bound to make life more difficult.
“The deal almost seems designed
to be unclear about whether it would happen until the very last
minute,”
Michael Carr,
Goldman Sachs‘s head of mergers in the Americas, said that the
decision to run a go-shop was a no-brainer, with many deals struck
these days including one.
“At this point, there’s no
choice,” he said. “It’s part of the mosaic of things that you need to
put together.”
But Faiza Saeed, a partner at
Cravath, Swaine & Moore, questioned the wisdom of the original voting
standard. Requiring a majority of all outstanding independent shares
in some ways automatically weights the shareholder vote to be against
the deal, because investors who don’t vote are regarded as opposing
the transaction.
“Majority of the minority sounds
good in the abstract,” she said. “But as a board, you’ve got to ask
yourself, ‘Does that make sense?’”
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The New York Times Company |
