Michael Dell wants to buy his company back, but Dell shareholders don’t seem too crazy about the deal. They were supposed to vote Thursday on a $24.4 billion buyout offer from the tech company’s founder and investors. But the company’s delaying the vote until next Wednesday, a sign it fears it will lose. With big shareholders skeptical of the offer, Michael Dell and his partners may have to pay a higher price to take the company private.
Dell is different than many takeovers because powerful activist investors are shaking things up. But generally, shareholder votes to sink deals are so rare they’re nearly unheard of.
“In the past eight years, shareholders have voted down less than one percent of takeovers,” says Adam Kommel, senior research analyst at FactSet SharkRepellent.
The colorfully named market research firm tracks this sort of thing and finds that since 2005, only 14 of 1,639 takeover deals died in a shareholder vote. All this doesn’t mean shareholders are powerless. Firms don’t allow votes unless they know shareholders dig the deal. So they work hard ahead of time to figure out something stock owners will like.
“Companies make sure they have the votes before they go forward,” says Ralph Walkling, founder and executive director of the Center for Corporate Governance at Drexel University.
That means the voting itself often winds up being a rather scripted affair.
“What we observe as a vote is somewhat pro forma,” says Anant Sundaram, professor at Dartmouth College’s Tuck School of Business. “Just management theater, if you will.”
Shareholders large and small can take part in the drama. One may like to believe that such a vote is that rare moment when regular people can buy shares and have their say. But in reality, on the takeover stage, the tiny investors are just extras, out shined by the powerful star players, institutional investors like mutual funds, pension managers and hedge funds.
Companies court these giant voting blocks long before ballots are cast. These big investors tend to control around 70% of stocks. That’s enough to make their voices roar. Individual investors, their votes, just kinda meow. And these relative kittens don’t really matter in the end.