Icahn: Dell Is an Example of a Larger Problem at U.S. Companies

Carl Icahn said Michael Dell's successful bid to buy the company illustrates the problems of a "dysfunctional system" in U.S. boardrooms.

The vote earlier this month enabling Michael Dell and his financial partners to buy the namesake company for about $25 billion and take it private is the latest example of a trend where corporate boards of directors ignore the desires of their shareholders and do what they want, according to activist investor Carl Icahn.

In the case of Dell, the board looked past years of lost value under Michael Dell and then, when confronted with opposition to the CEO's bid to buy the company, delayed the shareholder vote and changed voting rules to make it easier for the deal to be approved, Icahn wrote in a Sept. 18 column in The Wall Street Journal.

"Dell is just one recent example of a ridiculously dysfunctional system," he wrote. "Lacking strategic foresight, the Dell board for years presided over the loss of tens of billions of dollars in market value at the hands of CEO Michael Dell. Instead of deposing him, the Dell board froze out shareholders and [on Sept. 12] voted to allow the CEO to buy the company at a bargain price using shareholders' own cash."

The result is that the "transaction deprives long-suffering shareholders from benefiting from the green shoots of its newer businesses that Mr. Dell has just recently been touting," Icahn wrote.

The Sept. 12 vote—in which about 60 percent of shares were voted, and more than 65 percent of those approved the deal—ended what had been a contentious seven months that saw Michael Dell propose the deal and lobby shareholders to support it while Icahn and big investor Southeastern Asset Management worked to derail it.

For a while, it looked like the deal would be rejected. Michael Dell, who introduced his bid in February, had argued that the company had a better chance of freeing itself from its dependency on a global PC market that was faltering and transforming into an enterprise IT solutions provider if it were private and not influenced by the demands of Wall Street analysts. However, some major investors balked at the $13.65-per-share price, saying it undervalued the company.

Icahn became Michael Dell's primary antagonist—buying enough stock to become the second-largest shareholder after the CEO, proposing a deal that would pay $14 apiece for up to 1.1 billion shares and keeping the company public, and publically criticizing Michael Dell, the board and the deal.

The board postponed the vote three times when it became clear that the CEO and his financial backer, Silver Lake Partners, didn't have the necessary votes to get the bid approved. In August, Michael Dell agreed to boost his price to $13.88 a share if the board agreed to change the voting rules so that those shares not voted would not automatically be considered "no" votes. Icahn railed against the changes, unsuccessfully tried to sue Michael Dell and the board, and then dropped his opposition just days before the Sept. 12 shareholder vote.

In The Wall Street Journal column, Icahn—whose reputation is one of an activist who buys large numbers of shares in a company and then looks to wield his influence to force the company's board to do what he desires—said the Dell deal was symptomatic of a larger problem of a "board-centric system" in U.S. businesses in which boards of directors act to safeguard themselves and their CEOs and "shareholders have been relegated to a 'take it or leave it' status."

The answer to the problem is more activism among shareholders, similar to what he and his colleagues practice, Icahn said, touting the returns on investment generated by his company, Icahn Enterprises.

"Our record was attained not by investing in the 'right' companies and hoping the stock would rise, but by investing in underperformers and forcing them to change, often by installing better managers," wrote Icahn, who had said that if he had gotten control of Dell, Michael Dell would not have been kept as CEO. "We never tell these managers how to run the business or micromanage; instead, we provide oversight and demand accountability."