Billionaire investor Carl Icahn, in a bid to force Michael Dell to sweeten his $24.4 billion buyout proposal for Dell Inc. (DELL), said he’ll increase his offer for the PC maker by this morning by adding a warrant.
The new bid will be “vastly superior” to the founder’s offer, Icahn said yesterday on Bloomberg Television’s “Street Smart” with Trish Regan. “We’re going to come in and add into the package -- which we think is superior already.”
Icahn, who holds an 8.7 percent stake in Dell, has been agitating for months to try to force Michael Dell and buyout partner Silver Lake Management LLC to sweeten their $13.65-a-share offer. His latest plan would offer Dell shareholders $14 or the ability to retain equity in a publicly traded portion of the company -- rather than the buyout group’s deal that takes all the shares off the table for outside investors.
Icahn said he’ll add a warrant to his $14 offer that holders could exchange for additional stock should Dell climb to “around $20.” The securities act like equity options and are common in takeovers as a way of enhancing value.
“That will make it definitely superior,” Icahn said. “We think, after talking to a number of shareholders, that this should win the day for us. But you can’t be sure, obviously.”
This would be the fourth effort by Icahn to scuttle Dell’s buyout. In March, Icahn offered $15 a share in cash for as much as 58.1 percent of the stock. Then, in May, he teamed up with Southeastern Asset Management Inc. to offer investors $12 a share in cash or additional Dell stock while letting them retain stakes in a public company. Last month, he offered to help finance the last $14-a-share buyback proposal.
“He is going to have to come up with something big to break the momentum in favor of Michael’s deal,” said Erik Gordon, a business professor at the University of Michigan. “Another 50 cents won’t do it and another rant won’t do it.”
David Frink, a spokesman for Dell, declined to comment. Representatives for Silver Lake and Dell’s special committee of the board declined to comment.
Michael Dell, who founded the computer company with $1,000 while attending the University of Texas in 1984 and now owns a 15.6 percent stake, is seeking to take the company private to transform the computer maker into a contender in tablets and cloud computing. Icahn meanwhile has said Dell can benefit from the continued place PCs will have in the computing market while making a transition to cloud computing.
Dell and Silver Lake’s offer represents a premium of 25 percent over the computer maker’s closing share price of $10.88 on Jan. 11, the last trading day before news of a deal was first reported. The company’s shares closed at $13.35 in New York yesterday, giving it a market value of about $23 billion.
In German trading today, Dell climbed less than 1 percent to the equivalent of $13.42 at 10 a.m. in Frankfurt.
Shareholders are set to vote on the Silver Lake-led offer next week, after an earlier effort by Icahn to block the deal in Delaware court failed. The court argued that Icahn’s offer can’t be superior to Michael Dell’s because it’s not a full takeover.
Proxy advisory firm Institutional Shareholder Services Inc. recommended Dell shareholders vote for the $24.4 billion buyout by Dell and Silver Lake. Glass, Lewis & Co., another shareholder adviser, also backed the buyout proposal. A vote will be held at Dell’s Round Rock, Texas, headquarters July 18.
“From a public company shareholder’s perspective, if your CEO is willing to buy your falling knife for the privilege of catching it, there is probably a price at which you should let him,” ISS said in its July 7 report.
Icahn responded to that idea yesterday by saying he understood how to make money in declining businesses because he bought oil and casino stocks when they were unpopular.
“I’ve been right a lot more than I’ve been wrong,” he said. “I think I’m better qualified to say what a falling knife is than ISS.”
In a letter to Dell shareholders, Icahn urged them to seek a higher price for their shares in court, by exercising so-called “appraisal” rights available to shareholders of companies incorporated in Delaware. An October closing date for the deal would give investors until December to decide whether they want Dell’s price or a court appraisal, he said.
“It’s basically a free put,” Icahn said yesterday in the interview. “You can make that decision sometime before the end of the year. You don’t have to take the risk but you can still get the reward.”
Dell’s special committee said in a statement following Icahn’s comments that he is misrepresenting the risks and costs involved with appraisal proceedings. The committee said that if shareholders vote the deal down to pursue appraisal rights, they’ll forfeit the certain payout they would have received.
“Pursuing appraisal involves substantial risks and costs,” the committee said in the statement. “The special committee urges stockholders not to be misled by Mr. Icahn’s characterization of the appraisal option and to consider their options with great care, and continues to recommend that shareholders vote FOR the $13.65 all cash merger.”