Here’s What Michael Dell Thinks About His Fight with Icahn
Michael Dell’s fight to take control of the destiny of Dell (NASDAQ:DELL), the personal computer company he founded in his college dorm room in 1984, has entered another week. Shareholders are now scheduled to vote on his $24.6 billion buyout offer Friday.
In an email interview with Bloomberg, he explained why he has kept up the battle with shareholder Carl Icahn and his plans for Dell when (and if) the company ever goes private. His answers, and those to a similar interview with The Wall Street Journal, were included in several filings with the U.S. Security and Exchange Commission on Monday.
When asked what the battle means to him on a philosophical level, Mr. Dell said his focus was on doing what was right for the company. “I believe that taking Dell private is the right thing to do,” he said, echoing a statement he repeatedly made to shareholders in various proxy filings. “Others have suggested steps such as leveraged recapitalizations and sales of assets or businesses that I believe would be destructive to the company and that I will oppose.”
Icahn of Icahn Enterprises (NASDAQ:IEP) has long opposed the go-private deal for the personal computer manufacturer proposed by the company’s founder and CEO. He argued that the original $24.4 billion offer, which valued the company at $13.65 per share, was not enough. Furthermore, though Mr. Dell believes it is best to transform the PC maker into a provider of enterprise services as a private company, Icahn thinks that such a strategy is unfairm as it prevents shareholders from being a part of the company’s transformation.
In response to Mr. Dell’s proposal, Icahn, who owns a 8.7 percent stake in Dell, and fellow shareholder Southeastern Asset Management have proposed a tender offer for 72 percent of the company’s shares at $14 apiece, which would keep a portion of Dell a public company. Shareholders were also promised one warrant for every four of their shares, potentially give shareholders the right to buy one Dell share for $20 over the next seven years.
With fears growing that Dell shareholders may not find the buyout price of $13.65 attractive, Mr. Dell and financial backer Silver Lake recently sweetened their offer by a dime and asked for a rule change that might just give the buyout group an advantage amid the growing opposition led by Icahn. A letter sent to members of the Special Committee of Dell’s board of directors Wednesday proposed that the deal be approved by a majority of votes cast by unaffiliated shareholders. Previously, any shareholder that abstained was counted as a vote against the deal.
Of course, Icahn opposes the rule change. “We have spent the past six months explaining why we believe that not only does the Michael Dell/Silver Lake transaction undervalue the company, but it also freezes out loyal stockholders who deserve the opportunity to stay with Dell,” Icahn said in his letter to shareholders. “Michael Dell and Silver Lake crossed the Rubicon by trying to take away the one provision in the merger agreement that actually provided stockholders with a voice in their company. It is time for Michael Dell and this board to go.”
To say that Icahn’s proposal has brought drama to Mr. Dell’s buyout bid might be an understatement. But while the closeness of the vote has disappointed him to some degree, the unfolding drama has not exactly been surprising.
Noting that he respected the opinion of shareholders like Southeastern, who would be “willing to accept the significant risks and challenges of my effort to transform the company,” Mr. Dell believes that Icahn saw an opportunity in the “voting standard in our contract to buy into the company and organize a blocking position with a minority of the company’s shares.” Icahn was not a shareholder at the time the deal was announced.
What Mr. Dell found disappointing is that, under the current voting standard, it will take only “about 23 percent of the outstanding shares to block the transaction.” That is the reason he and Silver Lake proposed changing the terms. “The outcome should be decided by the unaffiliated shares that vote, not by shares that don’t vote,” he said. “Shareholder democracy certainly is not served if a minority of the unaffiliated shares voting on the transaction can deprive the majority of the unaffiliated shares voting on the transaction of an offer they want to accept.”
As for why the buyout group raised the bid by 10 cents, which Bloomberg referred to as a “token amount,” Mr. Dell “ultimately decided that it was appropriate to put more on the table in connection with asking for this change,” referring to the proposed modification of the voting standard. In his opinion, the increase to $13.75 per share, which “represents an additional $150 million to the unaffiliated shareholders,” is substantial. Mr. Dell added that the buyout group would not raise the offer any higher, even to the $14 per share price that the special committee said must be offered before it considers the rule change.
While some legal experts told Bloomberg that the voting change will open Dell’s board of directors to more liability and possibly more judicial scrutiny, the company’s founder said that allowing a majority of the unaffiliated shares to “control the outcome” will not expose the board to any “liability or increased judicial scrutiny.”
“Icahn has derided your management of Dell and accused you and Silver Lake of trying to steal the company,” the publication said to Mr. Dell. “What is your assessment of him? What do you think his real agenda is? And how well — or poorly — would you say that you have played your hand? Do you wish you had played things differently?”
“The tone and tenor of Mr. Icahn’s tweets and other statements speak for themselves and I have no desire to respond in kind,” Mr. Dell responded, adding that he thinks Icahn’s proposal would “be destructive to the company.”
If his offer is accepted, Mr. Dell will invest significantly to “extend end-to-end IT solutions capabilities, expand sales coverage, compete in emerging markets, invest for growth in the PC and tablet business, and simplify and enhance the customer experience.” Mr. Dell declined to speculate what would happen if his offer was voted down and Icahn won a proxy fight that would allow him to put his plan into action, but he did note if such events transpired he would own 42 percent of the company, and he would stay and continue to do his “best to make the company successful.”
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