NEW ORLEANS â€" By the time the sale of Dell Inc. to its namesake founder 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 â€" one where dissident investors led by Carl C. Icahn nearly derailed the transaction â€" needed to be so tough.
Jeffrey 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, after fall. 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 it 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 ultimately 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.
Ultimately, the company sold itself for nearly $25 billion. Mr. Rosen conceded that the process could have been run better â€" 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,â€
Michael Carr, Goldman Sachs‘ 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.â€
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, since 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?’â€
