Dell Inc. directors said they would review an alternative offer by two
large shareholders to a proposed $24.4 billion buyout of the computer maker,
which could potentially oust Chief Executive
Michael Dell in the process.
If
the board doesn't back their offer, Mr. Icahn and Southeastern said they
would nominate new potential directors to replace Dell's current board,
raising the prospect of a proxy fight.
Mr.
Icahn also took to the airwaves Friday to argue that Mr. Dell is no longer
the right person to lead the company, in view of what the letter called
"significant technological and strategic misses" by management and the
"absurd bargain" Dell's founder would reap in the pending transaction.
"If
our board is elected, [Mr. Dell] is not going to be running the company. I
can guarantee that 100%," Mr. Icahn said in a CNBC interview.
A
spokeswoman for Mr. Dell declined to comment.
The
investors' proposal adds to the issues facing directors of the ailing
computer maker, which in February announced a proposal by Mr. Dell and
private-equity firm Silver Lake Partners to buy all of Dell's publicly held
stock at $13.65 each. Some Dell shareholders have said the deal undervalues
the company, and the Icahn-Southeastern plan may offer those buyout
opponents an alternative road map.
Before a shareholder vote this summer on the Silver Lake-led deal, there is
likely to be more machinations and lobbying of wary shareholders, making the
final outcome difficult to predict. It is also possible Silver Lake and Mr.
Dell could offer Mr. Icahn and Southeastern a financial incentive to drop or
alter their offer.
Dell
shares rose 13 cents Friday, or less than 1%, to $13.45. The stock has
consistently traded below the buyout offer price, in a sign investors aren't
betting on a successful alternative to the Silver Lake-Mr. Dell offer.
Some
Dell shareholders said Friday they supported the Icahn-Southeastern offer.
"I see it as an upgrade," said Donald Yacktman, president of Yacktman Asset
Management LP. The investment firm held about 1% of Dell's stock as of March
31.
Dell
hasn't set a date for a shareholder vote on the Silver Lake-led buyout, but
people familiar with deal deliberations say it is likely to be in July. In
their letter to the board, Mr. Icahn and Southeastern urged Dell directors
to let company stockholders vote on the Silver Lake-led deal at the same
time as an annual shareholder meeting, at which Mr. Icahn and Southeastern
expect to propose a new slate of directors.
People briefed on Dell board deliberations say directors aren't obligated to
hold an annual meeting before mid-August, and they are unlikely to agree to
hold a deal vote and the annual meeting at the same time.
If
the votes aren't concurrent, that means shareholders would have to take the
risk on voting no on a Dell buyout, before Mr. Icahn or potential new
directors elected with his backing have a chance to act on his buyout
alternative.
The
question is whether shareholders would take the risk of turning down a
guaranteed payout now in the form of the Silver Lake-led buyout, in the
hopes the company could be worth more down the road if Mr. Icahn and
Southeastern succeed in their bid to keep Dell shares in the hands of public
investors.
Mr.
Yacktman acknowledged that if shareholders vote against the deal, Dell's
stock price is likely to go down. "We have a very long time horizon," he
said in an interview.
People familiar with Dell's board deliberations have said they considered
options to keep a portion of Dell shares public and pay out a large dividend
by borrowing money—a step known as a leveraged recapitalization, as Mr.
Icahn and Southeastern are proposing.
Those people said the board ruled out those options in part because
directors worried it was too risky to both keep Dell public and burden
Dell's business with debt.
Deal
watchers have wondered whether Silver Lake and Mr. Dell would raise their
offer to win over skeptical shareholders or offer some kind of noncash
sweetener such as a "contingent value right," a mechanism to give
shareholders an extra payment if Dell, for example, went public again above
a certain valuation.
People familiar with the matter say there have been no serious discussions
about such deal sweeteners. Those people said it is unlikely Silver Lake or
Mr. Dell would consider deal enhancements until closer to the deal vote, if
shareholder opposition remains strong.
Mr.
Icahn proposed a preliminary counter bid for Dell in March, which he is no
longer pursuing. He offered to acquire no more than 58% of the company's
stock at $15 a share, with the remainder of the shares staying in the hands
of public investors. Both he and Southeastern also have previously proposed
that Dell opt for a leveraged recapitalization instead of a buyout.
Their letter points to some changes that Mr. Icahn and Southeastern would
like to bring to Dell's business, including reducing the number of PCs it
sells, reducing its fulfillment centers and possibly returning some
manufacturing to the U.S. from Asia. It also mentions the possibility of
spinning off business units.
—Sharon Terlep and Joann S.
Lublin contributed to this article.
Write to Shira
Ovide at shira.ovide@wsj.com
A
version of this article appeared May 11, 2013, on page B3 in the U.S.
edition of The Wall Street Journal, with the headline: Icahn's Alternative
Offer: Oust Michael Dell.
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