Dell Board Looks for More Info on Icahn Buyout Proposal

Dell’s directors want more clarity on the finances and strategy involved in a bid by Carl Icahn and Southeastern to buy the company.

Dell's board of directors wants more information from Carl Icahn and Southeastern Asset Management before considering their pitch for buying the world's third-largest PC maker.

Icahn and Southeastern—which, combined, hold about 13 percent of outstanding Dell stock—in a letter to the board May 9 harshly criticized the $24.4 billion bid by CEO Michael Dell and Silver Lake Partners to buy Dell and take it private, calling it a "giveaway agreement" that benefits Michael Dell at the expense of shareholders.

In the letter, they proposed a plan that would keep the company public, return more money to investors and essentially remove Michael Dell from the company.

The special committee that Dell's directors created to review proposals for the company, in a letter to Icahn and Southeastern May 13, said more information is needed before considering their proposal. One thing they want to know is whether the two are actually making a bid for the company.

"It is not clear to us whether you intend to formulate your transaction as an actual acquisition proposal that the Board could evaluate and potentially endorse or accept or rather to propose it as an alternative that the Board could consider in the event the pending sale to private equity firm Silver Lake and Michael Dell is not approved," the board wrote.

In particular, the directors want Icahn and Southeastern to file a draft definitive agreement outlining their proposal, more information on the financing for the bid, and who would be on Dell's senior management team and what the company strategy will be should they buy the company. Only then can the special committee evaluate whether their bid is a superior offer to Michael Dell's, members said.

The pitch by Icahn and Southeastern is only the latest challenge to Michael Dell's proposal, which he announced in February. Michael Dell and Silver Lake, with a $2 billion boost from Microsoft, would pay $13.65 per share in the leveraged buyout and take the company private, a move that Michael Dell has argued would enable him and other Dell executives to accelerate the vendor's transformation from primarily a PC maker to an enterprise IT solutions and services provider.

Soon after the proposal was made public, some large investors—including Southeastern and T. Rowe Price—said the bid significantly undervalued the company and that they would vote against it and possibly engage in a proxy fight to stop the deal. Later, both Icahn and private equity firm Blackstone Group made counter-offers, though Blackstone Group last month withdrew its bid.

Now Icahn and Southeastern appear to be making a bid for the company, in which investors could either get a $12-per-share cash dividend or receive $12 in additional shares for $1.65 a share. Icahn and Southeastern both will opt for the shares, not the cash, they said. They would finance the proposal using available Dell cash and about $5.2 billion in new debt, though they did not say where the money would come from.

In their May 9 letter, Icahn and Southeastern urged the directors that if they didn't feel their offer was better than Michael Dell's, to at least let shareholders see the two bids side-by-side and vote on which they liked best. They also said that if they were turned down, they would push to have a new board of directors that they pick be elected.

"We have great respect for Michael Dell for creating and building Dell and also for the 'negotiating' ability he has shown in getting his Board to grant to him this almost absurd bargain," Icahn and Southeastern wrote in their letter. "However, we believe all shareholders (at their discretion) should have the opportunity to participate in the upside potential we believe is present, not solely Michael Dell and an opportunistic buyout group leveraging to the hilt the company's own assets with very little of their own equity."