Dell Inc. postponed a shareholder vote on its chief executive's $24.4 billion buyout offer to Wednesday after failing to get enough support to seal the deal, despite winning over several large investors at the eleventh hour.
The adjournment of the meeting on Thursday, called minutes after shareholders gathered at Dell's headquarters in Texas to decide on what could be the largest buyout since the financial crisis, buys time for co-founder and CEO Michael Dell to persuade naysayers to switch sides.
Complicating matters, billionaire investor Carl Icahn, who has amassed an 8.7 percent stake in Dell, is leading a charge with major shareholder Southeastern Asset Management against the buyout with an offer of his own. He and others say Michael Dell's deal undervalues the world's No. 3 personal computer maker.
Investors are divided over Dell's prospects. Some are ready to cash out of a company increasingly vulnerable to a crumbling PC market and already a shadow of an earlier self that led the global market and stood as a model of industry innovation.
Others remain convinced the company founded out of Michael Dell's dorm room in 1984 can transform itself into a dominant provider of business computing services - under his leadership or otherwise.
In the week leading up to Thursday's meeting, Icahn's team and Dell's special board committee - which supports the CEO's offer - have flooded shareholders with letters and documents to argue their respective positions.
Vanguard and BlackRock Inc are now on board with the proposal, sources familiar with the matter told Reuters on Thursday.
Still, they said Michael Dell and private equity partner Silver Lake fell about 100 million shares short of the 735 million that they need for the buyout to pass.
A large chunk of non-votes - which count as "nays" - from mainly retail investors, helped account for the shortfall, several investors told Reuters.
Some arbitrage investment funds may also hold out hope that Michael Dell will bump up his offer price, they added on condition of anonymity. Arbitrageurs, who typically make short-term bets around the outcomes of deals and other major transactions, own roughly 350 million shares or 20 percent of the company's outstanding stock, one of the investors estimated.
Michael Dell may have to raise his $13.65-a-share offer to secure the deal, analysts and investors say. But other sources have said he and Silver Lake remain reluctant to pay more for a company that traded at about $10 before news of the buyout surfaced.
"The delayed vote may speak to the Silver Lake/Dell transaction not finding necessary support," said Topeka Capital Markets analyst Brian White. "A higher bid may be necessary to consummate this transaction."
Dell shares were up 2.2 percent to $13.16 in early afternoon trading, New York time.
It is unusual for corporations to adjourn shareholder meetings on such short notice, but governance experts say it can be done if the company bylaws allow it.
Over the next week, the board will encourage the apparently large number of shareholders that had not cast votes to support the deal, said mergers expert Brian Quinn, an associate professor at Boston College Law School.
"To encourage these votes to come out, they will likely also try to re-engage Silver Lake to seek out a higher price," he added.
On Thursday, Icahn was quick to respond to what he called an "unfortunate" adjournment.
"This delay reflects the unhappiness of Dell stockholders with the Michael Dell-Silver Lake offer, which we believe substantially undervalues the company," he said in a statement issued with Southeastern. "This is not the time for delay but the time to move Dell forward."
Vanguard and BlackRock had previously opposed the deal, but ultimately switched sides, a source said, requesting anonymity because the matter is not public.
Other investors previously seen as swing votes, such as State Street Corp, Bank of New York Mellon Corp and Invesco also voted in favor of the deal on the eve of the shareholders' meeting, the source said.
T. Rowe Price Group Inc, Highfields Capital Management, Pzena Investment Management and Yacktman Asset Management have previously voiced opposition to the deal.
Vanguard declined to comment. Representatives of the investment firms were not available for comment.
Board member Alex Mandl, chairman of the special committee overseeing the buyout, set the new meeting date for Wednesday.
Under so-called majority-of-the-minority voting provisions, a majority of shareholders - excluding Michael Dell's roughly 16 percent stake - would have to vote for the buyout for it go through.
Shareholder Ed Benson from San Antonio, one of the many retail investors that account for an estimated 10 to 15 percent of shares in the company, turned up in Round Rock on Thursday but had expected the meeting to be adjourned.
"It's very hard to acquire that many votes," said Benson, who supports the buyout proposal.
But travel agent Linda Bush, who commuted to the meeting from the area, disagrees.
"The majority of people I talked to didn't vote for it. We need to be paid more."