Carl Icahn Is Going To Fight The Dell Sale
Carl Icahn is going to fight the sale of Dell. Icahn hinted at “years of litigation” if Dell does not cancel the $24.4 billion deal to sell the company to the founder, Michael Dell. Michael Dell bought out the company with private equity company Silver Lake and a loan from Microsoft. Icahn did not disclose how much stake he owned in Dell, but claimed that his holdings are “substantial.” Supposedly Icahn owned a 6% stake in the company, which was acquired in recent weeks.
Icahn proposed that Dell should issue a special dividend of $9 per share, which would be financed from the company’s cash on hand and new debt. He believes that Dell was worth around $13.81 per share and his suggested transaction (known as a leveraged recapitalization) would be worth around $22.81 per share.
“We believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright,” stated Icahn. “We see no reason that the future value of Dell should not accrue to all the existing Dell shareholders – not just Michael Dell.” Icahn said that he will call on the board to combine a vote on the deal if Dell does not comply. The vote would call for a re-electing of the company’s directors. He plans to nominate an alternate slate of nominees for the board.
Below is a letter that Icahn sent out to the special committee of Dell’s board:
This article was written by Amit Chowdhry. You can follow me at @amitchowdhry or on Google+ at +AmitChowdhry
We are substantial holders of Dell Inc. shares. Having reviewed the Going Private Transaction, we believe that it is not in the best interests of Dell shareholders and substantially undervalues the company.
Rather than engage in the Going Private Transaction, we propose that Dell announce that in the event that the Going Private Transaction is voted down by shareholders, Dell will immediately declare and pay a special dividend of $9 per share comprised of proceeds from the following sources: (1) $4.26 per share, or $7.4 Billion, from available cash as proposed in the Going Private Transaction, (2) $1.73 per share, or $3 Billion, from factoring existing commercial and consumer receivables as proposed in the Going Private Transaction, and (3) $4.26, or $5.25 Billion in new debt.
We believe that such a transaction is superior to the Going Private Transaction because we value the pro forma “stub” at $13.81 per share using a discounted cash flow valuation methodology based on a consensus of analyst forecasts. The “stub” value of $13.81 combined with our proposed $9.00 special dividend gives Dell shareholders a total value of $22.81 per share, representing a 67% premium to the $13.65 per share price proposed in the Going Private Transaction. We have spent a great deal of time and effort in determining the $22.81 per share value and would be pleased to meet with you to share our analysis and to understand why you disagree, if you do.
We hope that this Board will agree to adopt our proposal by publicly announcing that the Board is committed to implement our proposal if the Going Private Transaction is voted down by Dell shareholders. This would avoid a proxy fight.
However, if this Board will not promise to implement our proposal in the event that the Dell shareholders vote down the Going Private Transaction, then we request that the Board announce that it will combine the vote on the Going Private Transaction with an annual meeting to elect a new board of directors. We then intend to run a slate of directors that, if elected, will implement our proposal for a leveraged recapitalization and $9 per share dividend at Dell, as set forth above. In that way shareholders will have a real choice between the Going Private Transaction and our proposal. To assure shareholders of the availability of sufficient funds for the prompt payment of the dividend, if our slate of directors is elected, Icahn Enterprises would provide a $2 billion bridge loan and I would personally provide a $3.25 billion bridge loan to Dell, each on commercially reasonable terms, if that bridge financing is necessary.
Like the “go shop” period provided in the Going Private Transaction, your fiduciary duties as directors require you to call the annual meeting as contemplated above in order to provide shareholders with a true alternative to the Going Private Transaction. As you know, last year’s annual meeting was held on July 13, 2012 (and indeed for the past 20 years Dell’s annual meetings have been held in this time frame) and so it would be appropriate to hold the 2013 annual meeting together with the meeting for the Going Private Transaction, which you have disclosed will be held in June or early July.
If you fail to agree promptly to combine the vote on the Going Private Transaction with the vote on the annual meeting, we anticipate years of litigation will follow challenging the transaction and the actions of those directors that participated in it. The Going Private Transaction is a related party transaction with the largest shareholder of the company and advantaging existing management as well, and as such it will be subject to intense judicial review and potential challenges by shareholders and strike suitors. But you have the opportunity to avoid this situation by following the fair and reasonable path set forth in this letter.
Our proposal provides Dell shareholders with substantial cash of $9 per share and the ability to continue as owners of Dell, a stock that we expect to be worth approximately $13.81 per share following the dividend. We believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright. We see no reason that the future value of Dell should not accrue to ALL the existing Dell shareholders – not just Michael Dell.
As mentioned in today’s phone call, we look forward to hearing from you tomorrow to discuss this matter without the need for us to bring this to the public arena.
Very truly yours,
Icahn Enterprises L.P.
Carl C. Icahn
Chairman of the Board