Is This a Last-Ditch Dodge of Dell’s Buyout?

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It is becoming increasingly unlikely that Michael Dell’s bid to buy his namesake company, Dell Inc. (NASDAQ:DELL), will succeed. Shares for Dell fell to $13.03 on uncertainty over the buyout and it looks as though Michael Dell and Silver Lake Partners aren’t planning on raising their bid to save the deal, amongst considerable opposition from shareholders.

Billionaire investor Carl C. Icahn, a large stakeholder in Dell, has repeatedly criticized the proposed buyout and has stood in stark opposition. In a letter to shareholders, Icahn wrote, “I have never seen a board conduct a campaign to demean the business prospects of their own company in the way Dell has during the past few weeks.” He continued, “In my opinion, they wish to frighten stockholders into selling Dell to Michael Dell and Silver Lake, at what I believe is a bargain price.”

In the presentation it gave to shareholders, Dell warned that shares for the company could trade in the range of $5.85 to $8.67 if the buyout did not pass. “In this presentation, Dell issued pages of confusing and obfuscating statements, but it is interesting to note that they never changed their projections in which they have Dell earning $3 billion of operating income for the year,” Icahn wrote in his letter.

A rejection would likely not be the worst-case scenario to shareholders as Dell appears to be worth more than the $13.65 a share. Icahn believes the stock is worth over $22 a share — and that’s an estimate that gives little value to the struggling personal computer business.

If Michael Dell’s buyout is struck down, Carl Icahn and Southeastern Asset Management have already issued a counter-proposal. The proposal calls for a $15.6 billion tender offer at $14 a share, allowing Dell to retire 1.1 billion shares, or 62 percent of its shares. According to the Icahn/Southeastern presentation, Dell’s current earning power is about $2 a share and Dell could be trading at $20 or more in just two years.

Michael Dell and Silver Lake Partners will likely make a decision by the end of the week whether they intend to increase their bid for the buyout. The shareholder vote is July 18th and any offer less than $15 a share is unlikely to garner much support.

The buyout will need the support of about 43 percent of Dell shareholders, after Michael Dell’s nearly 16 percent stake in the company is taken out of consideration. Of the remaining shareholders, Icahn and Southeastern together control 13 percent, T. Rowe Price 4 percent, Pzena at about 0.7 percent for a total of about 18 percent — almost all of that 18 percent, if not all, is likely to be in opposition to the buyout when the vote occurs.

Icahn says that shareholders can simply look to his enormous stake in the company, and his refusal to accept the buyout, as proof that there’s more than meets the eye when it comes to Dell’s buyout.

“I am known as an astute investor and I am not inclined to make a huge investment lightly. I am proposing a total risk to my affiliates and myself of $5 billion (including our existing equity and proposed debt financing) and thereby provide an alternative to Michael Dell and Silver Lake acquiring the company at what I consider to be a bargain price. I have not risked $5 billion merely to get a bump from Michael Dell and Silver Lake. I have risked it to have a large investment in a company with great potential,” he said.

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