Dell $24.4 Billion Buyout Complicated By Entrance of Investor Icahn

By Jeffrey Burt  |  Posted 2013-03-06

Dell $24.4 Billion Buyout Complicated By Entrance of Investor Icahn

Michael Dell’s efforts to buy out his namesake company and keep control of it after taking it private are rapidly getting more complicated and problematic.

The deal to sell the world’s third-largest PC maker to a group headed by Michael Dell and included investment firm Silver Lake Partners and software giant Microsoft—already under heavy opposition from two of the company’s largest shareholders—was further shaken by reports March 6 that activist investor Carl Icahn has recently amassed more shares of Dell stock, bringing his stake to as much as 6 percent of the company.

At the same time, rivals Hewlett-Packard and Lenovo—the two largest PC vendors in the world—reportedly also have considered making a bid for Dell, though sources in new reports have questioned whether either company has any real in interest in buying Dell or were using the opportunity to get a closer look at their competitors’ books.

Another company, private equity firm Blackstone Group, also reportedly has shown interest in Dell, though an unnamed source told Reuters that any interest was only preliminary.

That said, all these machinations, combined with the already strong opposition to deal by Southeastern Asset Management and T. Rowe Price—which combined hold about 13 percent of Dell stock—are indications that the plan announced by Dell executives a month ago to sell the company and take it private is going to be a hard-fought victory if it happens.

Michael Dell and other company executives began talking to the board of directors in August 2012 about the idea of taking Dell private. Analysts have said that, from a strategic standpoint, such a move makes sense. It would allow Dell officials to ramp up their efforts to transform the company from a maker of commodity PCs to a vendor of enterprise IT solutions and services, reducing its reliance on a PC market that continues to see sales contract.

They would also be free to make strategic decisions away from the scrutiny of Wall Street and the pressures of having to meet quarterly financial goals, the analysts said.

The board of directors created a special committee to determine the best path forward for Dell. According to a statement released by the committee earlier March 6, the group looked at all options—from keeping the company on the same course it had been to selling off parts or all of the business. The deal to sell to Michael Dell and his group made the most sense to both shareholders and the company, the committee said.

Dell $24.4 Billion Buyout Complicated By Entrance of Investor Icahn

However, soon after the deal was announced Feb. 8, some shareholders began balking at the $13.65-per-share price, saying it undervalued the company and shortchanged investors while favoring Michael Dell. Officials with both Southeastern Asset Management and T. Rowe Price both have said the companies will oppose the deal, as have a number of smaller investors. Southeastern officials have said they believe a fair price would be as much as $24 per share, and have said they would consider going as far as leveraging a proxy fight to kill the deal as is.

Icahn’s entrance into the fray only complicates things for Michael Dell. Icahn is known for high-profile efforts to force companies to move as he believes they should. That has included well known battles over the decades in such industries as airlines—as in the takeover of TWA in the 1980s—to movies (Lions Gate) and trucking (OshKosh Corp.). In the technology space, he has been involved in controversies from Yahoo to Motorola to Netflix.

A 6 percent share in Dell—CNBC said Icahn had amassed as many as 100 million shares—would make him among the company’s largest investors and a factor in whether the deal would play out. CNBC reported that unnamed sources said that Icahn has met with the Dell board’s special committee urging them to abandon the leverage buyout plan and instead opt for a leveraged recap, which would include Dell buying shares back and keeping the company public.

Icahn reportedly has told people he opposes Michael Dell’s plan to take the company private. The deal needs a majority of shareholders to approve it in order to go through. According to Barron’s, the shareholders that have voiced opposition to it hold more than 20 percent of the shares. Michael Dell, with his 15 percent of the shares, is excluded from the number of investors needed for approval.

While the shareholder struggle wages, the deal is also in the midst of a “go shop” period, where the special committee can entertain any other offers for the company. The window closes March 22, though should there be a legitimate offer on the tablet, the committee could go beyond that date to continue negotiations.

Representatives from HP, Lenovo and Blackstone have declined media requests for comments on their reported interest.

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