Michael Dell will give up his power to never be fired after Dell becomes a public company again
- Michael Dell will once again be running a public company, thanks to a new financing deal with VMware.
- As part of that deal, the billionaire CEO has given up something interesting: His ability to veto his own removal as CEO.
- He's still basically impossible to remove as CEO, though, with 66% voting power over Dell.
The months of speculation on Michael Dell's intentions towards VMware is over. Instead of Dell gobbling up VMware in a so-called reverse merger, VMware will be allowed to continue as an independent company.
Instead, Dell and VMware are doing something else. They are essentially getting rid of an awkward tracking stock for VMware, a financial vehicle Dell created to help it pay for its massive buyout of EMC. When Dell bought EMC, it inherited majority control over VMware.
With this new deal, Dell is offering owners of those tracking shares a choice of $109 cash or 1.35 Class C shares in Dell Technologies. That means that Dell will become a public company once again, in what the company says is a form of IPO.
This move comes with an interesting additional cost for Michael Dell: While Dell was privately held, he had job security for life, more or less. Now, after this move, he loses the ability to veto his own removal.
Michael Dell is the owner of most of the company's outstanding Class A shares, while his private equity partners, Silver Lake Partners, own most of the outstanding Class B shares, Dell Technologies said in a regulatory filing.
Dell's Class A shares come with some special privileges, including control of three board seats and a special provision that gave them the exclusive power to veto any attempt to remove the CEO or to strip the CEO of the chairman title.
In other words, the only person who could fire Dell or remove him as chairman, was Dell himself.
But that provision rested on two stipulations. One was that Dell had to be alive and well. The second was that Dell Technologies could not have done an IPO.
The problem for Dell is that the merger deal that turns Dell into a public company definitely qualifies as an IPO, according to the new charter Dell signed as part of this agreement.
Therefore, once the deal is complete, Dell's Class A shareholders no longer have veto power if the company's board of directors wants to fire Michael Dell as CEO. Since Michael Dell is the largest Class A shareholder, that means he can no longer block his own hypothetical termination.
On top of that, his shares will no longer give him sole control the three board seats. All shareholders will collectively get to vote on the entire slate of directors, the charter says.
So has Dell completely put his head on the chopping block? Not really.
Those Class A shares still come with 10 votes per shares, as do Silver Lake's Class B shares. The company says that Dell owns 49% of the company's stock and has 66% of the total voting power.
So Michael Dell is still basically impossible to remove as CEO, even if he's no longer got a statement in the company's charter that gives him the right to veto his own removal.
When asked for comment, a Dell spokesperson pointed to Michael Dell's public letter in which he said, "This transaction will have little impact ... as a public company, we will keep the same strategic focus on long-term growth that has helped us strengthen, reshape and grow our business."
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