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THE WALL STREET JOURNAL.
WSJ Blogs
An
up-to-the-minute take on deals and deal makers
March 7,
2013, 7:23 AM
Carl Icahn
Ratchets Up Dell Fight With Dividend Proposal, Proxy Threat
By
David Benoit
Carl Icahn has lobbed a bomb
into Dell Inc.’s
go-shop period.
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Bloomberg
News
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The
special committee negotiating Dell’s buyout confirmed this morning that the
billionaire has taken a “substantial” position in the PC maker and has his
own ideas about how to deliver cash to shareholders.
Icahn sent the committee a letter that includes those ideas and ratchets up
the rhetoric in this month-long fight. He feels the buyout price is low and
his idea is better, so the board should toss out the Michael Dell buyout. If
they don’t do that, he demands the board in essence put his proposal to a
vote of shareholders by allowing them to vote on who makes up the board. And
he threatens “years of litigation” for the special committee if it fails to
heed his words.
“We
believe, as apparently does Michael Dell and his partner Silver Lake, that
the future of Dell is bright,” Icahn’s letter said. “We see no reason that
the future value of Dell should not accrue to ALL the existing Dell
shareholders – not just Michael Dell.”
The
board’s committee reiterated it is conducting a robust go-shop period to
find other suitors.
“We
welcome Carl Icahn and all other interested parties to participate in that
process,” the statement said. “Our goal is to secure the best result for
Dell’s public shareholders — whether that is the announced transaction or an
alternative.”
The
threat of litigation has hung over this management buyout from nearly the
day it was announced. Management-buyouts are likely to face shareholder
lawsuits – as are nearly every M&A transaction these days – and since
shareholders have vocally opposed it, a court battle was always possible but
Icahn is the first to vocalize.
Icahn’s idea of a paying
shareholders a special dividend and allowing them to continue holding the
stock to reap the rewards of a turnaround
is similar to Southeastern Asset Management’s earlier plan.
Icahn calls for a $9 special dividend to be paid largely with overseas cash
repatriation and new debt. But Icahn adds a unique suggestion for the
company to use its existing receivables, cash it is promised by contracts
but hasn’t received, and to use that to backstop a loan from a bank.
Factoring is a common bank loan, but not typical for a giant corporation
like Dell.
Using some analysis, Icahn says current shares, after his maneuvering, would
be worth $13.81 and coupled with his dividend give a $22.81 value to
shareholders.
But
while others have ranted about the $13.65 buyout deal not being fair price,
Icahn urges the special committee to allow his proposal to be voted on, a
new level of shareholder demand.
He
proposes the board throw out the deal and agree his proposal is better. But
if they don’t he wants a proxy fight to be allowed in, so he can propose a
new board that would carry out his plan if shareholders vote down the
buyout.
Icahn even pledges to lend $3.25 billion of his own money, on “commercially
reasonable terms,” if the company is in need of bridge financing should the
deal be voted down. He also pledged $2 billion loan from his company.
Update: This post has been updated to include the special committee’s
response and to change that Icahn called his stake “substantial” not
“sizable.”
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