Investing

Carl Icahn Doubles Down on Pursuing Dell


Icahn speaking in New York in 2012

Photograph by Scott Eells/Bloomberg

Icahn speaking in New York in 2012

“Mr. Dell, I have Carl Icahn on line 2.”

So it is. Dell (DELL) is trying its best to go private—the better to get out of the glaring limelight of quarterly earnings targets and Wall Street expectations while its business continues to fade. But activist investor Carl Icahn won’t go away; he thinks founder and Chief Executive Officer Michael Dell is trying to get the company on the cheap. With a July 18 shareholder vote on the buyout looming, Icahn wants to block the deal and get the PC maker to fork over more of its cash.

In an open letter to shareholders on Tuesday, Icahn argued that Dell should make a tender offer for about 1.1 billion shares at $14 apiece—instead of accepting the $13.65-a-share deal from Michael Dell and private-equity firm Silver Lake Management. “Our proposal allows those who believe, like us, that the $13.65 price being offered in the Michael Dell/Silver Lake going-private transaction significantly undervalues Dell, to continue to hold Dell shares,” Icahn wrote in the letter. “It also provides an opportunity for those who wish to tender at $14 a share to do so.”

Icahn is making this rejiggered run at Dell after disclosing that he has nearly doubled his stake in the company. He’s now the second-largest shareholder, after Michael Dell, having bought 72 million shares from fellow dissident holder Southeastern Asset Management, which parted with half its position.

“Southeastern has determined that Icahn is in the best position to lead the development of an alternative transaction,” the firm said in an e-mailed statement. Together, Icahn and Southeastern own nearly 13 percent of Dell shares, according to data compiled by Bloomberg.

Icahn says he has the financing to make his Dell plan a reality, including up to $5.2 billion in debt, a commitment of  $1.6 billion from an investment bank, $7.5 billion of Dell’s cash load, and nearly $3 billion from sales of its receivables. This formula, he says, would still leave approximately $4.9 billion cash available for ongoing Dell operations.

The Dell special committee reviewing offers for the company remains unimpressed. “Mr. Icahn’s concept is not, in its present state, a transaction that the Committee could endorse and execute,” it said in a statement. “There is neither financing, nor any commitment from any party to participate, nor any remedy for the company and its shareholders if the transaction is not consummated.”  The committee reiterated its concern that the “Icahn’s current concept” (corporate-speak passive-aggression) would likely force an over-leveraged company on shareholders.

“We take this opportunity to respond to rumors regarding the availability of financing for our proposal for a recapitalization at Dell and to address recent statements by Dell that demean the prospects of Dell,” Icahn wrote in his letter. “We are amazed by these statements. … In what other context would the person tasked with selling a product actually spend their efforts negatively positioning the very product they are trying to sell? … Can you imagine a real estate broker running advertisements warning of termite danger in a house each time a prospective buyer seems interested?”

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Farzad is a Bloomberg Businessweek contributor. Follow him on Twitter @robenfarzad.

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