Dell, one of the largest Fortune 500 companies headquartered in Texas, announced its intention to redomesticate in Texas from Delaware late Monday. This time, the motion is likely to actually pass a shareholder vote.
In a memo to shareholders filed with the U.S. Securities and Exchange Commission, the company said its board of directors unanimously approved moving Dell’s corporate charter to Texas, to be voted on at Dell’s annual shareholder meeting on June 25. The memo also said, “Our principal stockholders, consisting of Michael Dell and Silver Lake, have the ability to ensure approval of the redomestication proposal.”
“From my dorm room at the University of Texas in 1984 to our headquarters today in Round Rock, Texas has given Dell what every great company needs to grow — extraordinary talent, world-class research universities, and a business environment that lets us build for the long term,” said Michael Dell, chairman and CEO, in a release. “Texas is where Dell has innovated, expanded, and invested for more than four decades, and bringing our legal home to Texas reflects what we’ve been building here all along.”
Redomestication or reincorporation are processes by which companies move their corporate charter from one state to another, therefore becoming subject to a different corporate law framework. Delaware, because of its preeminent Chancery Court, has led the nation in corporate law for a century, but Texas and Gov. Greg Abbott are endeavoring to challenge Delaware with the new Texas Business Court and a suite of legislation to give it a head start. “Dexit” is the name given to the burgeoning movement out of Delaware, after a controversial ruling in Delaware against Tesla set off the wave.
However, one Texas’ new laws allows companies to set a threshold of 3% ownership before a shareholder can file a a shareholder derivative suit, while no such provision exists in Delaware. Critics claim this law dilutes shareholder rights, and it could make a true “Dexit” wave to Texas difficult if it prompts independent proxy advisors to recommend votes against redomestication proposals.
Dell’s move comes just weeks after a similar proposal from notable Dallas-based bank Texas Capital failed, tabling the redomestication issue for the time being and keeping the bank’s state of incorporation in Delaware. Texas Capital attributed the vote’s failure to recommendations against the proposal from prominent proxy advisors ISS and Glass Lewis, who many industry folk have criticized for outsized influence on shareholder votes.
Dell, though, will not face such constraints, as a pattern emerges amongst early takers of “Dexit.” According to its most recent annual report, because of a multi-class share structure, more than 90% of voting power is concentrated with Michael Dell and private equity firm Silver Lake. Dillard’s and Coinbase also have multi-class share structures where voting power is concentrated with founders, and though Tesla’s proposal passed a shareholder vote in which Elon Musk and associates abstained, his influence over the company is undeniable.