By Greg Roumeliotis
July 12 Michael Dell and private equity firm
Silver Lake are looking increasingly likely to obtain
shareholder approval to take Dell Inc private in a
$24.4 billion deal. But activist investor Carl Icahn still sees
room to gamble.
Icahn, who is Dell's second-largest shareholder after
Michael Dell, is now trying to sway investors to vote down the
buyout deal by raising his competing offer for the No. 3 PC
If Michael Dell wins, Icahn will go home with a profit of
$10.7 million for his troubles, Reuters calculations show. If
Icahn wins, he will have a troubled company on his hands to turn
around. But if neither happens, the billionaire investor could
lose hundreds of millions of dollars.
Representatives of Icahn, Dell and Silver Lake declined to
Icahn's cost basis, which has not been reported before, and
his new Dell offer show why the 77-year-old investor is one of
the most feared activists in corporate America.
Earlier this week, he urged Dell shareholders to go to court
to get a higher price for their shares from Michael Dell. Dell's
special board committee as well as legal experts said that
strategy was fraught with challenges, such as the risk that the
court could decide the shares are worth less than the offer
"You know this guy is willing to put up a good fight," said
James Cox, a corporate and securities law professor at Duke
University School of Law.
Dell faces an uncertain future as sales of personal
computers decline steeply and the popularity of tablet computers
grows. The company's special committee of the board, which is
overseeing the sale process, has repeatedly spurned Icahn's
plans to recapitalize Dell and reward shareholders, leaving open
the possibility that the shares will plunge if the buyout is
voted down. Dell shareholders will vote on the Michael
Dell-Silver Lake offer of $13.65 per share on July 18.
So far the odds are favorable that the Michael Dell-Silver
Lake team will win shareholder approval, investors say. All
three major advisory shareholder firms this week backed the bid
to take Dell private.
Icahn and Southeastern Asset Management Inc on Friday said
they sweetened their bid for Dell by adding warrants they say
would increase the value of the offer to a range of $15.50 to
$18 per share from $14.
Under the new offer, Dell shareholders would receive $14 per
share and a warrant for every four shares held. The warrant
would entitle the holder to buy Dell shares for $20 each within
the next seven years.
Icahn's hope is that arbitrage-loving hedge funds will find
the warrants to be attractive pieces of paper to trade. People
familiar with the deal estimate that 25 percent to 30 percent of
Dell's stock is now owned by such event-driven funds.
For Icahn, whose net worth is pegged by Forbes at $20
billion, Dell has been an uphill struggle from the get-go. But
he has managed to turn some of the odds in his favor.
Last month, he lowered the average cost of his stake in Dell
by buying 72 million shares for $13.52 each from Southeastern
Asset Management Inc, another shareholder that is also backing
his cause. Icahn had earlier paid $13.89 each for 73.5 million
The maneuver brought down the cost of his now 8.7 percent
stake in Dell to $13.58 per share, including Dell's dividend,
which is 7 cents per share below Michael Dell's offer.
He would stand to lose a substantial portion of the $2.07
billion he paid for his stake if Dell shares were to collapse in
the event the Michael Dell offer was voted down and he did not
succeed in getting his way.
But Icahn is clearly confident that shareholders will back
his plan if they decided to vote down the buyout. Icahn has
committed more than $3 billion of his wealth toward a $5.2
billion financing package for his share buyback plan. He would
have to pay this money only if all 12 of his nominees were
appointed to Dell's board.