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Dell warns stockholders that Icahn's plan would 'hamstring' company

Thursday's vote could make or break Dell's future

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The battle for control of Dell between the company's eponymous founder and investor Carl Icahn is in its endgame, with both sides making last-ditch attempts to win over stockholders for Thursday's vote on Michael Dell's plans to take the firm private again.

That's if the vote happens, of course. Several media outlets have reported rumors that the Dell board is going to delay Thursday's election to see if either side will increase their offers. Given the recent declines in Dell's stock price, however, they might not want to wait too long.

Last week, Icahn added seven-year warrants allowing stockholders to buy Dell shares at $20 each (the current traded price is $12.82) to his proposed $14 per share plan to buy control of the company. Michael Dell and Silver Lake Partners are sticking firm with their $13.65 offer to take the company private.

On Tuesday, the special committee of Dell's board sent a letter to shareholders explaining why it thinks the lower share price being offered by Dell and Co. is a better deal. It stated that Icahn's plan is dependent on shaky financing, would require 12 board members nominated by Icahn who have demonstrated no plan of action for managing the company, and would load the company with a colossal amount of debt while using up most of its cash reserves.

"It is, we believe, not an accident that no large publicly traded technology company carries high levels of debt," the letter read.

"While we recognize that, as a private company controlled by Mr. Dell and Silver Lake, the Company will have a significant debt burden, the risks of that capital structure will be borne entirely by the buyers and not by the public stockholders. Moreover, the buyers have the financial resources to invest additional funds if that proves necessary."

Michael Dell is putting a substantial amount of his own money behind the bid, and Microsoft is loaning the firm an extra $2bn for the buy-back to help out, too. The committee's letter said that as the company is trying to move away from the PC sector and into new areas, private control is the way to go, not running a publicly traded firm in a volatile stock market.

Certain investors seem to think differently. Icahn has around 20 per cent of the firm's voting stockholders publicly against the deal, including Southeastern Asset Management, T. Rowe Price, Pzenza Investment Management, and Yachtman Asset Management.

On Wednesday, CNBC reported that sources in Blackrock, the world's largest asset management firm that owns 2.97 per cent of Dell, say that firm is also planning to come out against the deal. If so, then Michael Dell is going to have to hit the phones hard to prop up support for his buy-back scheme.

While not a Dell shareholder, this hack reckons that Michael Dell's offer is going to be better in the long run for investors. The company is facing a very uncertain future as it moves away from the PC and it's by no means sure it can do so successfully.

Icahn's plan would essentially give him control of the company, and it's highly likely Dell would resign his position and seek pastures new. The firm would be left leaderless and it's likely its best staff would seek more stable opportunities elsewhere. Under such conditions, failure looks near certain, particularly given Icahn's past record at mismanaging firms like TWA.

If Dell is going to succeed, then the firm will need all its cash reserves and technically minded leadership. The company's enterprise side is still strong, it's managing the shift to services as well as could be hoped, the PC side can be run in managed decline, and it's exploring new areas for future growth. All of this looks best managed by techies, not fund managers. ®

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