Is Icahn’s Bickering With Michael Dell Done for Good?

Stock Market

“I withdrew my demand for appraisal of my Dell shares. Based on our returns on capital, we believe we have better uses for $2 billion.” — Carl Icahn (@Carl_C_Icahn) October 4, 2013

The stake in personal computer manufacturer Dell (NASDAQ:DELL) that Carl Icahn’s firm, Icahn Enterprises (NASDAQ:IEP), owns amounts to 156.5 million, worth approximately $2 billion.

Activist investor Carl Icahn, a man known for taking large stakes in companies he judges to be ill-managed or undervalued and pushing for change, began amassing his 8.9 percent stake in the struggling personal computer manufacturer Dell earlier this year. His investing turned into a bid rivaling the go-private offer made by the company’s founder and Chief Executive Officer Michael Dell at the beginning of March. With Icahn in the lead, many other large shareholders began to oppose the privatization proposal, causing Mr. Dell to postpone the shareholder vote over his bid multiple times, sweeten the bid, and fight off Icahn’s criticism.

They argued that even though the market for PCs was evaporating — IDC has predicted shipments to fall 10 percent this year — it was worth more than the $24.9 billion, or $13.75 per share, Mr. Dell had offered. The point often highlighted is the fact that Dell managed to generate $3.6 billion in earnings before interest, taxes, and amortization despite the fact that more than half of its business comes from PC sales.

Even after Dell shareholders voted in favor of going private, Icahn still sent the question of appraisal to the Court of Chancery in Delaware, the state where Dell is incorporated. The court appraisal would have required Mr. Dell to pay the shareholders who brought the litigation whatever value the court determined was fair.

But Icahn has backed off his demand for the independent court appraisal of his 8.9 percent stake in the PC maker, a fact that the company confirmed in an 8-K filing made with the U.S. Securities and Exchange Commission Friday. The document stated that Icahn had notified the company and his affiliates had “withdrawn their written demands for appraisal“ for the entire stake. “We are going to proceed accordingly with the rest of the process, including closing” the deal later this month “and then with whatever litigation occurs down the road,” Dell spokesman David Frink said in an interview with Bloomberg.

In total, Dell received appraisal requests for 225 million shares, a person familiar with the situation told the publication. That means that investors holding approximately 68.5 million shares are still passing up the $942 million in proceeds they would have received as the result of the buyout in order to pursue the court valuation.

Icahn’s decision to forgo independent valuation followed one month behind his decision to withdraw his competing bid for Dell. He chose not pursue his proposal not because of any worries that the declining personal computer industry will present too great of an obstacle to engineer a turnaround, but because of Mr. Dell’s tactics.

“We won, or at least thought we won, but when the board realized that they lost the vote, they simply ignored the outcome,” wrote Icahn, referring to the three times the vote was postponed for what Mr. Dell called lack of shareholder support. Now Icahn is focusing on his Apple (NASDAQ:AAPL) investment, meeting with the iPhone maker’s Chief Executive Officer Tim cook to push his demand for a $150 billion stock buyback.

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