Harry CampbellBelieve it or not, Carl C. Icahn has a case.
I refer here, of course, to Mr. Icahn’s suit brought through his fund against the board of Dell Inc..
Icahn is suing the board over its latest decision to accept a higher buyout offer from Michael S. Dell in exchange for modifying the rules governing the vote for the deal. On Monday, a hearing will take place in the Delaware Court of Chancery on whether to expedite Mr. Icahn’s suit.
But while Mr. Icahn is challenging the entire sale process in Delaware, his claims will be more limited on Monday. The main one will be that the Dell board’s postponement of the annual meeting to elect directors to Oct. 17 is an undue delay under Delaware law. This claim is related to a second allegation that the Dell board has manipulated the shareholder vote on the buyout by postponing it to Sept. 13.
The net result is that there are now two meetings planned for Dell more than a month apart. The first will be a vote on the sale and the second will be a vote on Dell’s directors, which is likely to take place only if shareholders reject the deal.
Mr. Icahn does not like these staggered meetings because it means that any proxy contest to unseat the Dell directors, presumably in favor of ones who would support Mr. Icahn’s own recapitalization proposal to buy back 1.1 billion shares at $14 each, could happen only after the buyout vote. But if the buyout vote is not held simultaneously with the vote on directors, Mr. Icahn asserts, that will deprive shareholders of the opportunity to choose between the buyout deal and Mr. Icahn’s alternative, preventing Mr. Dell from making his “best and final” bid. In other words, Mr. Icahn wants both meetings to be held on the same day to put more pressure on Mr. Dell to raise his offer again. (Mr. Dell, by the way, said his last offer was his “best and final” but then proceeded to agree to pay Dell shareholders a higher amount, so Mr. Icahn has a point here).
On Monday, Mr. Icahn will be seeking to have the court schedule a hearing to consider his claims that both meetings should be held on the same date before Sept. 15.
These are not all the claims that Mr. Icahn is likely to pursue. But he is seeking a preliminary injunction to hold the meetings on the same date, so the only relief he can achieve now is to show that it cannot be addressed by the court after the buyout takes place. The scheduling of the shareholder meeting is obviously something that cannot be dealt with later.
These two claims appear to be Mr. Icahn’s best ones now.
Not only that, Mr. Icahn’s first claim, about the undue postponement of the annual meeting, has a good chance of success. Under Delaware law, an annual meeting must be held within 13 months of the previous one. Dell’s last annual meeting was on July 13, 2012.
The Delaware courts have held this requirement to be “virtually absolute.” In past cases, the Delaware courts have repeatedly ordered a meeting held even when there was a good reason for postponement, like the unavailability of financial information or even allegations that another shareholder was out to harm the corporation. In one case, Steel Partners II v. Blank Solutions, a Delaware court refused to allow a meeting postponement where a shareholder was seeking to replace the directors for a sale of the company at a low price. And while the courts have left an opening to justify the delay in extreme cases where there would be an injustice not to do so, this doesn’t seem to be the case here.
In Dell’s case, the 13-month period expires on Aug. 13, 2013. Given the law, this likely means it is game over for Dell on its meeting postponement unless the judge finds the narrow exception in Delaware law applicable.
If Mr. Icahn wins, the court will order Dell to hold its annual meeting at an earlier date.
But this does not end the matter. Mr. Icahn is also asking the court to hold the meetings on the same day and to reset the record date for both to align them.
It’s a nice legal maneuver. Mr. Icahn is trying to use a favorable claim about the annual meeting to push everything to fruition on the same day. It’s classic Icahn — do everything in your power to win or at least get another nickel out of the bidder. There is a reason I’ve referred to him before as a genius Wile E. Coyote.
But while Mr. Icahn has a good case to hold the annual meeting earlier, it does not mean that the court will force both meetings to be held on the same day.
One reason is that it would be difficult under the proxy rules to set a record date and distribute a proxy for the annual meeting in time to hold it on the same day as the vote on the buyout.
If the court orders the meetings to be held on the same day, the court would also most likely have to agree with Mr. Icahn’s second claim that the Dell board is manipulating the process by staggering the meetings. But such a staggering is not uncommon in the case of merger votes. The reason is to spare the expense and bother of an unneeded vote on directors if the company is going away. Finally, while Mr. Icahn has claimed that having the annual meeting later than Sept. 15 will adversely affect the financing he has lined up for his proposal, it doesn’t appear that there are any other good reasons that shareholders can’t just make the same decision a week later. Much of Mr. Icahn’s financing is his own anyway, so he can just agree with himself to amend the terms.
In any event, the date for the annual meeting is really the big decision for the court, not whether the meeting should be held earlier. As I said, there’s no clear legal reason that the annual meeting must be the same date as the buyout vote, but Mr. Icahn is using the second claim about manipulating the vote for the merger to prod the court to do so. In the background loom Mr. Icahn’s future claims about the change in voting standard and issues with procedure, issues that are probably much weaker claims for reasons I’ve elaborated on before. These will also no doubt emerge at some point.
On Monday, the court will decide whether to expedite these claims. And if so, a hearing on the actual substance of these claims will most likely be held either that week or the week after. That second hearing will be no earlier than Aug. 13 because of some uncertainty about whether you have to wait the full 13-month period to bring suit to force a meeting to be held.
While Mr. Icahn has a case and his lawyers have done well here in pursuing a viable case, I can’t help but feel that this is all part of his “years of litigation” strategy, which has worked so far to nudge the buyers to increase the offered price. A victory will only mean that Mr. Icahn will get to run a proxy contest while fighting the merger and trying to raise yet again the buyout price. It will be a public relations victory, but it still means Mr. Icahn must win over Dell’s shareholders. But then again, Mr. Icahn may only be fighting to push the buyers into one final raise to buy peace.