Can Dell Squeeze More From Icahn?

Carl Icahn New Feature 300x270Thanks to a clause written into its acceptance of the $24.4 billion buyout proposal submitted by private-equity firm Silver Lake and Chief Executive Officer Michael Dell, the special committee of board put in place a 45-day go-shop period in which Dell (NASDAQ:DELL) could “actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals.” This requirement was meant to assuage any critics who thought that Mr. Dell was receiving a deal.

Two competing proposals  – one from Blackstone Group (NYSE:BX) and one from Carl Icahn — slid in just ahead of the March 22 deadline. Both deals were structured so that a part of the company would remain public. In comparison, the bid made by Mr. Dell and Silver Lake would fully take the company private.

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While media attention has been primarily focused on the PC-maker’s discussions with the investment firm Blackstone Group, with some publications like The New York Times questioning whether the company’s interest in Dell was merely a charade, it seems that the special committee has decided to support Icahn’s offer. The Wall Street Journal reported that Dell has struck a deal with the activist investor, who has already acquired a nearly 5 percent stake and publicly criticized Silver Lake’s offer for undervaluing the company…

Under the terms of the deal, Icahn has agreed not to buy shares that would give him more than a 10 percent stake until the takeover process is completed, nor will he be able to forge deals with other shareholders that would bring their collective ownership to more than 15 percent. The committee said Tuesday that granting a limited waiver to Icahn, while also capping his share ownership, will “maximize the chances of eliciting a superior proposal” from Icahn while also protecting shareholders against “potential accumulation of an unduly influential voting interest.” Dell noted that the committee had determined that the activist investor’s bid could reasonably be expected to result in a superior proposal.

This agreement with Icahn will expire when the transaction with Mr. Dell and Silver Lake is closed, if a superior alternative proposal materializes, or on January 15, 2014 — whichever event transpires first.

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Many shareholders, in addition to Icahn, expressed outrage with Silver Lake’s proposal to take the company private because it valued Dell at just $13.65 per share, a figure that represented a 25 percent premium to the price of its stock before the deal was announced. In a letter sent to Dell’s board of directors, Southeastern Asset Management, owner of an 8.4 percent stake, argued that the company’s March 29 proxy statement failed to make a compelling case for shareholders to accept the bid, asserting that the committee’s evaluation of the leveraged buyout deal was flawed.

Shares of Dell have dropped more than 12 percent in the past 12 months.

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