What Carl Icahn's Stake Means For Dell's Future

Michael Teague |

A committee comprised of Dell, Inc.'s (DELL) board of directors announced on Wednesday that selling the company would be a better alternative for the company’s shareholders than the $24 billion buyout proposal recently floated by the company’s founder and CEO Michael Dell in tandem with Silver Lake Capital.

The announcement comes on the back of a growing chorus of opposition to the buyout that is being voiced by some of the company’s largest shareholders, including Southeastern Asset Management and T. Rowe Price.

The plot has thickened somewhat, however, with the addition of Carl Icahn to the fray. The legendary billionaire investor has been in the press at least weekly as of recent after a rare televised dispute with Pershing Square Capital's Bill Ackman over the latter’s accusations about the business practices of the dietary supplement company Herbalife (HLF), of which Icahn owns a 13-percent stake.

CNBC reported Wednesday that Icahn is expected to file a 13D on Dell in the near future over shares he has purchased over the last few weeks that are estimated at about 6 percent of the company’s total. Icahn will presumably come out in favor of the same plan that is being endorsed by Southeastern, namely that Dell forego the buyout in favor of a plan that would involve a substantial one-time dividend payout.

Southeastern is lobbying fellow shareholders to vote against the proposed buyout deal, and their case would presumably be made stronger with the addition of Icahn, who was unwilling to comment on any aspect of the situation as of yet. The proposed buyout values the company at $24.4 billion, or $13.65 per share, but Southeastern said the offer is too low and shares should be worth as much as $24 per share. In addition, Icahn has reportedly proposed a "leveraged recapitalization" and special dividend of $9 per share to be issued in an effort to reduce the likelihood of a buyout.

For the time being, Dell seems to be riding the Dow’s record-breaking crest that has now survived two closing bells.  The company’s shares gained 1.78 percent on the day to close at $14.32. Shares jumped as high as over 3 percent when news broke about Icahn's stake.

 

med since Icahn hasn’t filed a 13D with the U.S. Securities and Exchange Commission confirming. CNBC cited “trading sources” who were confident about it, however. Investor sentiment appeared to waver a bit in choppy after-hours trading.

Assuming Icahn’s position is confirmed, the fight against Dell’s go-private plan suddenly gets a lot more interesting. Icahn is said to want a “leveraged recapitalization” of the company instead of the buyout at the proposed price of $13.65 a share. He’s also interested in a special dividend amounting to $9 a share.

Earlier today, Dell’s board of directors defended their actions against criticism from shareholders. Some, like Southeastern Asset Management, have argued that the buyout price is too low, and should be closer to $24 a share.

And if that weren’t enough, Bloomberg News is now reporting that Hewlett-Packard and Lenovo have been drawn into discussions with Dell’s board as part of the “go-shop” process during which Dell’s board is supposed to be seeking superior bids.

Yet in the second paragraph, Bloomberg’s chatty banker sources drain all the importance out of the story. The only reason HP and Lenovo are kicking the tires is to see Dell’s books, “so it’s unlikely an alternative bid will emerge.”

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