Dell Remains in Icahn's Sights

Investor Carl Icahn, rebuffed on his initial bid for Dell, is now demanding a $16 billion tender offer and buys 72 million shares of the company.

Dell is still going to have to deal with Carl Icahn.

After several days of speculation that the activist investor was reconsidering his bid to buy the world's third-largest PC maker—paving the way for CEO Michael Dell's $24.4 billion buyout proposal—Icahn bought more Dell shares and urged the company to buy back 1.1 billion shares for $14 a piece.

Doing so would effectively block the plan by Michael Dell and private equity firm Silver Lake Partners from following through on a bid announced in February that would pay $13.65 a share and would let the buyers take the company private. The offer, which was accepted by the Dell board of directors, drew immediate criticism from some shareholders, who said the deal greatly undervalued the company and benefited the CEO at the expense of shareholders.

Icahn and Southeastern Asset Management, another major shareholder, last month laid out a deal that would pay $12 per share, but keep the company public and enable investors to buy more shares. Dell's directors earlier this month questioned whether Icahn and Southeastern could come up with the necessary financing for the deal, and suggested at the time that the bidders were coming up almost $4 billion short.

The directors urged shareholders to support the bid by Michael Dell and Silver Lake, and set a vote for July 18.

Icahn also bought 72 million shares of Dell from Southeastern, making him the largest investor outside of Dell.

In a June 18 letter to shareholders, Icahn said his goal was to defeat Michael Dell's bid and get his own slate of candidates elected to the Dell board. The new board would then take up the $14-per-share tender offer, which would amount to about $16 billion.

"Our proposal allows those who believe, like us, that the $13.65 price being offered in the Michael Dell/Silver Lake going-private transaction significantly undervalues Dell to continue to hold Dell shares," Icahn said. "It also provides an opportunity for those who wish to tender at $14 a share to do so, with the knowledge that they will be able to sell at least approximately 72 percent of their position, and possibly more if other shareholders do not fully subscribe to the tender offer."

Neither Icahn nor Southeastern would sell their shares as part of the tender offer.

The Icahn move is just the latest blow to a proposed buyout that has been under fire since it was first announced. Michael Dell has argued that taking the company private will help him and other Dell executives accelerate the company's transformation from a PC maker to an enterprise IT products and services vendor. The company already has spent billions buying dozens of companies to build up its capabilities in such areas as storage, networking, software and the cloud.

However, the company is still highly dependent on a slowing global PC market under siege from mobile devices such as smartphones and tablets.

That said, the buyout proposal has been controversial. Some large shareholders—including Southeastern and T. Rowe Price—have promised to vote against it, and other investors have filed suit against the company for accepting the deal.

Icahn, in proposing his initial deal, called it a giveaway. In the letter to shareholders, he criticized the board of directors for questioning the financing of his initial offer.

"In what other context would the person tasked with selling a product actually spend their efforts negatively positioning the very product they are trying to sell?" he asked. "Is that how the supposed 'go-shop' was conducted? Can you imagine a real estate broker running advertisements warning of termite danger in a house each time a prospective buyer seems interested?"

So Icahn instead decided to scrap the initial plan and demand the $14-per-share tender. He said the financing would involve $5.2 billion of debt financing, $7.5 billion in cash available at Dell and $2.9 billion by selling some Dell receivables. That would leave the company with $4.9 billion of cash, he said. A "major investment bank" has said it would lend $1.6 billion, and Icahn and his affiliates would make another $2 billion available if necessary, he said.