Dell should make a tender offer for about 1.1 billion shares at $14 apiece as an alternative to the $13.65-a-share deal from Michael Dell and private-equity firm Silver Lake Management LLC, Icahn said yesterday in an open letter to the computer maker’s shareholders. The activist investor said the buyback addresses two shortcomings of the LBO offer: that it’s too cheap and doesn’t give shareholders the opportunity to profit for any improvement in Dell’s performance.
“Our proposal allows those who believe, like us, that the $13.65 price being offered in the Michael Dell/Silver Lake going private transaction significantly undervalues Dell, to continue to hold Dell shares,” Icahn wrote in the letter. “It also provides an opportunity for those who wish to tender at $14 a share to do so.”
Icahn in March outlined an alternative buyout plan that would maintain Round Rock, Texas-based Dell as a publicly traded company, paying investors $12 a share in cash or stock while letting them retain stakes in a so-called stub of the company. A special committee of Dell’s board, which earlier this month said Icahn’s plan would result in a $3.9 billion funding gap, said in a statement yesterday that the latest proposal appears to equate to a dividend of $10 a share rather than $12, and fails to adequately address the company’s “liquidity issues.”
As with the previous proposal, Icahn is offering to help finance the share buyback. He said his firm is working to line up $5.2 billion in debt for the proposed tender offer, and Jefferies Group LLC (JEF) is willing to make $1.6 billion available, according to a person familiar with the plan who asked not to be identified because the information isn’t public.
Southeastern Asset Management Inc., one of the largest Dell shareholders, is supporting Icahn in his effort to scuttle the Silver Lake-led transaction. The Memphis, Tennessee-based firm said it agreed to sell half its stake, or 72 million shares, to Icahn, which would make him Dell’s largest outside shareholder second only to Michael Dell.
“Southeastern has determined that Icahn is in the best position to lead the development of an alternative transaction,” the firm said in an e-mailed statement. Icahn and Southeastern together own almost 13 percent of Dell shares, according to data compiled by Bloomberg.
In addition to the debt financing, Icahn said the company could use its $7.5 billion in cash and $2.9 billion from sales of its receivables. An additional $2 billion could be made available by Icahn and his affiliates, according to the letter. Richard Khaleel, a spokesman for New York-based Jefferies, declined to comment.
“As the board’s special committee continues to oversee its process, we remain focused on our customers and on providing innovative products and solutions to help them succeed and better compete,” David Frink, a spokesman for Dell, said in an e-mailed statement.
Dell contacted more than 70 potential strategic and financial buyers for the struggling PC maker during a “go-shop” period following the Silver Lake-led group’s initial $24.4 billion buyout offer, the company has said. Dell’s board said last month that its founder’s proposal “is the best alternative available -- in a challenging business environment.”
The Silver Lake-led group’s offer of $13.65 a share represented a 25 percent premium over Dell’s share price on Jan. 11, the last trading day before Bloomberg News reported the company was in talks to go private. Silver Lake is based in Menlo Park, California.
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