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Report: Icahn spoiling for a proxy fight with Dell over buyout deal

Enlisting Southeastern Asset Management as ally against Big Mike

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Activist investor (we hesitate to use the term vulture capitalist because it gives vultures a bad name) Carl Icahn has said that Michael Dell and the consortium of partners he has put together to take his eponymous company private for $24.4bn is not paying enough for the company. According to reports, Icahn is now getting ready to launch a proxy fight to get his own directors on the Dell board.

Icahn Enterprises is based in New York, and talk in the Big Apple and the New York Post reported in its Sunday paper that Icahn is gearing up for a proxy fight and seeks to enlist the support of Southeastern Asset Management, the largest outside shareholder in Dell. The Post says that Icahn will launch his proxy fight before a May 13 deadline for such an action. Dell's twelve-person board is up for election at the next annual meeting, which Dell has yet to schedule.

The Dell board set up a special committee to review any proposed offers to acquire the company, and enlisted the help of Evercore Partners to seek alternative bids to the one that Michael Dell put together with Silver Lake Partners, Microsoft, and a consortium of banks back on February 5.

That deal would use a mix of repatriated cash, money borrowed from Microsoft and the banks, Big Mike's personal stake in the company (14 per cent of shares) plus a bit of his own cash stash, and other funds borrowed from banks to take over the IT giant for $13.65 per share.

Southeastern Asset Management, which has an 8.4 per cent stake in Dell, did some analysis for a few days and then argued, pretty convincingly, that Dell was worth something more like $23.72 per share, which works out to a $42.4bn buyout.

In early March, Icahn admitted that he was amassing a sizeable stake in Dell, and at the end of March both Icahn Enterprises and private equity behemoth Blackstone Group both said they were interested in taking a run at buying Dell just as the 45 day "go shop" period that the Dell special committee had set up expired.

Icahn proposed a deal that put his $1bn in stock plus another $1bn he would buy, plus $7.4bn in Dell cash, another $5.2bn in debt and $1.7bn from monetizing receivables to acquire a 58 per cent stake in Dell, leaving it still a public company but one largely under control of Icahn and the board he would pick. That works out at $15.65 per share, or a 14.7 per cent premium over the Dell & Friends consortium.

Blackstone did an initial offer of $14.25 per share, but has since said no thanks to actually acquiring the company. And it doesn't look like Icahn is interested in buying Dell any more, either, although he is, as always, interested in maximizing his investment.

When this is all said and done, no one may end up acquiring Dell at all and it may remain just as it currently is: a public company. But there will be one big difference, perhaps.

A new board with activist investors – remember, don't give vultures a bum rap – will borrow lots of cash and sell off some assets to bleed the company of its cash. Then they will sell their stakes and move on to the next victim opportunity.

No matter what, Michael Dell is still filthy rich, so it is no skin off his nose, even if his pride might be wounded. He can go out drinking with Scott McNealy and John Akers, then. ®

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