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Icahn lines up prodigious Dell deal dough

Your move, Big Mike and Friends

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Carl Icahn, the activist investor* who has been providing the only alternative to Michael Dell's plan to take the IT company that bears his name private, has finally lined up the financing that he says will be necessary to acquire Dell at a higher price than Dell, the man, is offering.

In a letter to Dell shareholders and the special committee that is weighing the two different deals that are still on the table, Icahn Enterprises says that it has come up with the $5.2bn in debt financing to acquire enough shares in the IT giant to pay a slightly higher price, at $14 per share, to take control of the company.

Here's how the math works. Jefferies Finance has kicked in $1.6bn and has lined up another $3.6bn from various (and as yet unnamed) sources. (The paperwork is expected to be filed by the time the market closes at the end of the day on Monday.) Icahn Enterprises wants to peddle off a bunch of receivables and get another $2.9bn, then burn another $7.5bn of Dell's cash hoard to do a self-tender offer. That works out to a total of $15.6bn to take control of 1.1bn shares if the tender offer is fully subscribed, and it leaves around 670 million shares of Dell still trading publicly. The deal will leave Dell with $4.9bn in cash (very likely in overseas divisions) and Icahn has lined up another $1.5bn in revolving lines of credit to keep Dell cash flush.

The way Icahn and his buddies at Southeastern Asset Management, which is the largest shareholder outside of Big Mike himself, do the math, Dell shareholders will get $14 a pop for 72 per cent of their shares and, based on Icahn's analysis of the remaining business, those publicly held shares will generate somewhere between $3.72 and $5.51 per share going forward, based on Dell's prospects for future profits.

Given this math, Icahn argues that his deal is far superior to the $13.65 per share offer that Dell and Silver Lake Partners are trying to orchestrate to take over the company. Icahn is taking enough shares private to have control, while Dell & Friends want to take it fully private for $24.4bn.

Getting this tender offer done as Icahn and SAM want is no trivial matter. The Dell special committee is hosting a meeting on July 18 to vote on the Michael Dell and Silver Lake deal. Shareholders would have to vote this deal down and select a new board of directors that would pursue the Icahn/SAM deal.

Icahn says point blank that the offer from Dell, the man, and Silver Lake is not one that shareholders should agree to.

"We believe that it would be a sad outcome for stockholders and would, to say the least, reflect terribly on all who are involved in this process if, after purchasing shares at what we perceive to be a substantially undervalued price of $13.65 per share, Michael Dell and Silver Lake earned substantial returns on their investment while other stockholders are forced to sell," Icahn explained in his letter to Dell's special committee and Dell shareholders. "It would be even worse if Dell were sold (or broken up) by Michael Dell and Silver Lake in a transaction or transactions with one or more strategic acquirers for a very large profit."

Now, isn't that just what we expect Carl Icahn to do the first minute there is a cloud on the horizon and an excuse to do so? Ask Trans World Airlines how that game plays out.

And now, we will see if Michael Dell and Silver Lake are ready to throw more cash into their deal, or will instead argue that Icahn and SAM have not done their math right. The latter option is sure cheaper. ®

* Bootnote

Once again, we do not use the term "vulture capitalist" here at El Reg because such industry titans often give vultures a bad name.

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