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Dell Special Committee Refuses to Move LBO Goalposts

Tickers in this article: DELL

NEW YORK (TheStreet) -- A Dell special committee tasked with maintaining fairness in the process of the struggling PC-maker's takeover has refused to alter the shareholder voting process to decide on the leveraged buyout offer from Silver Lake Partners and Michael Dell.

Dell's special committee said Wednesday they would not amend the company's merger agreement with Silver Lake and Michael Dell in return for a 10-cent increase to the takeover consortium's initial offer of $13.65 a share, or $24.4 billion.

The consortium was asking that along with the increased offer, Dell's special committee agree to revise a February 5 merger agreement so absentee votes at the shareholder meeting aren't counted against the takeover consortium.

Given votes already cast by institutional holders such as BlackRock, Vanguard and State Street in favor of the deal, and opposition from T. Rowe Price, Icahn Associates, Southeastern Asset Management, Yacktman Asset Management and Pzena Investments, most of Dell's largest shareholders are spoken for.

To bridge a deficit of support, Dell's takeover consortium needs to appeal to smaller institutional holders and other investors who did not participate in voting ahead of Dell's twice-adjourned shareholder meeting.

The decision may force Silver Lake and Michael Dell to have to return to the bargaining table with a new offer, given a competing self-tender proposal floated to Dell shareholders by billionaire activist investor Carl Icahn.

Still, Dell's special committee did say they are willing to change the record date for the voting process if Silver Lake and Michael Dell offer a $13.75 without asking for a change to the merger agreement.

"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," Dell's special committee said in a letter addressed to Silver Lake and Michael Dell.

It is reported that about 20% of Dell's shareholders were absent the July 18 vote, creating a roadblock for the private equity buyers. Meanwhile, Silver Lake's revised offer of $13.75 a share only increases Dell's buyout price by approximately 0.7%.

A source familiar with the situation said last week Silver Lake's increase was unlikely to turn many "no" votes to the takeover into "yes" votes. Meanwhile, changing the treatment of absentee shareholders could undermine the fairness of Dell's buyout process, which has received strong support from a key Delaware court.

"The integrity of the process is one of the best things the deal has going for it," the source said.

For now, the special committee will adjourn Dell's shareholder vote until 10 a.m. EST on August 2nd.

A lot could happen in the week-long delay, however, there are also signs of a standoff between Silver Lake, Dell's special committee, shareholders and Carl Icahn.

Dell shares were down over 1% in early trading to $12.67, the lowest level since Silver Lake and Michael Dell's takeover was announced.