One of the biggest critics of Michael Dell’s plan to take the company he founded private has launched a fresh challenge to that $24.4 billion bid and says the slumping PC maker needs new leadership.
Billionaire investor Carl Icahn has teamed with Dell’s largest independent shareholder, Southeastern Asset Management, to pitch a deal that would let Dell shareholders keep their stake in the company.
Icahn’s offer values shares at $1.65 apiece, and includes an additional $12 that investors can receive as either cash or Dell stock, according to a filing today. Shareholders seeking to exit their equity could take the $12 in cash while looking for a buyer for newly diluted shares. Icahn and Southeastern say this alternative, which would keep the company publicly traded, gives shareholders a stake in future company gains, according to a May 9 letter sent to Dell’s board.
Under the offer from Michael Dell and Silver Lake, Dell would be taken private and investors would receive $13.65 a share in cash. Southeastern and Icahn, with a combined 13 percent stake, said that their proposal gives investors a chance to benefit from potential future growth at Round Rock, Texas-based Dell and that it is more valuable than the Silver Lake buyout proposal. Yet by only guaranteeing $12 a share in cash, the deal carries risks for investors who don’t want to own Dell.
“Mathematically, there is no question it is superior,” Icahn said in an interview on Bloomberg Television. “You have a choice of getting $12 and still owning Dell, which has great potential.”
Icahn and Southeastern heaped more criticism on Dell’s offer in the letter. They accused the Dell board of insulting shareholder intelligence by claiming to be focused on shareholders’ best interests while accepting Dell’s offer to buy the company for “far below what we consider its value to be.”
“You not only sanctioned Michael Dell’s offer, which amazingly allows him to purchase the company from shareholders with their own money but, to add insult to injury, you have agreed to give Mr. Dell a breakup fee of up to $450 million,” the letter states.
A special committee of Dell Inc.’s board said in a separate statement that it is carefully reviewing the proposal from Icahn and Southeastern “to assess the potential risks and rewards to the public shareholders.”
In the event that the special committee concludes that the new proposal isn’t superior, Icahn plans a proxy battle to install his own slate of directors. Under Icahn’s scenario, Michael Dell would probably not “be the one to run the company,” Icahn said in the interview.
Southeastern and Icahn plan to take additional stock in the third-largest computer maker, rather than cash, they said.
“Icahn has a decent chance of getting enough support to force Michael and Silver Lake to raise their bid,” said Erik Gordon, a professor at the Ross School of Business at the University of Michigan in Ann Arbor. “Michael needs to get to a price that makes stockholders think they’re getting paid enough to give up the future Michael sees in a turned-around Dell.”
Icahn and affiliates own about 4.5 percent of Dell’s shares, today’s filing shows. Financing for his proposal will come from existing cash at the PC maker and about $5.2 billion in new debt. That compares with about $16 billion of debt under the buyout proposal, according to the letter. Southeastern holds about an 8.2 percent stake, according to a separate filing.
“Either give shareholders the real choice they are entitled to or face the legal liability for your failures,” Icahn and Southeastern wrote to the board.
Jefferies LLC has committed $1.6 billion to help finance the transaction, Icahn said in the Bloomberg TV interview.
“If I have to, I will put in $2 billion of my own,” Icahn said.
Representatives of Silver Lake declined to comment.
Blackstone Backs Out
Michael Dell and private-equity firm Silver Lake will have to determine whether to sweeten their offer, which was outlined in February, while Dell’s board considers whether the new proposal from Icahn might be deemed superior. Blackstone Group LP, the world’s biggest buyout firm, pulled out of bidding for Dell last month amid concerns over a worsening global PC slump.
As more consumers check e-mail, browse the Web and watch television and movies on smartphones and tablets, PC shipments plummeted 14 percent in the first quarter, the worst decline since researcher IDC began tracking data in 1994. The record drop in computer sales helped trigger the withdrawal, Blackstone said in a letter released at the time. Blackstone had made a non-binding offer to acquire Dell in March.
The PC market, although challenged, “is far from an obsolete technology, but one that is maturing and ultimately somewhat cyclical,” Icahn and Southeastern said in the May 9 letter. Furthermore, “the PC is not where the ultimate long- term opportunity lies for Dell, something we are confident Michael Dell is betting on, while leaving shareholders out in the cold.”
Icahn and Southeastern will work to persuade all shareholders to reject the Dell offer and will put up a slate of 12 directors to challenge the current board at the annual shareholder meeting if their proposal isn’t recommended by the board, according to the letter.
Michael Dell, who founded the PC provider in his Texas dorm room in 1984, needs to ensure majority control so he can pursue his plan to retool the struggling company as a maker of data- center gear and software for corporations — without the scrutiny of public investors.
“Icahn is saying the same thing that Michael is saying — that the company has a brighter future,” Gordon said. “The difference is that Michael wants to own a bigger chunk of the future by buying out the stockholders and Icahn wants to share the future, for better or worse, with existing stockholders.”
Dell shares rose 13 cents to close at $13.45 Friday. The stock has ranged from $8.69 to $15.81 over the past year.
(Bloomberg News and The Associated Press contributed to this report)