Dell CEO Rejects Icahn’s Alternative to LBO as Risky

Dell Inc. Chief Executive Officer Michael Dell, seeking to rally support for his planned $24.4 billion buyout, said an alternative proposal by billionaire Carl Icahn would hamper efforts to transform the company into a broader provider of business products and services.

Icahn’s proposal would add substantial debt, decrease financial flexibility and “hurt the company’s ability to weather an economic or business downturn,” Dell said today in a regulatory filing. “It would also jeopardize customer perception and employee retention.”

The CEO is pointing out shortcomings in Icahn’s offer ahead of a shareholder vote set for next month, seeking to attract backing for his plan to take the third-largest personal computer maker private with Silver Lake Management LLC. Icahn and partner Southeastern Asset Management Inc. this week urged the PC maker to make a tender offer for about 1.1 billion shares at $14 apiece, his third push to derail the $13.65-a-share buyout proposed by the CEO.

“Completing Dell’s transformation as quickly as possible is essential,” CEO Dell said in the filing. “Accomplishing Dell’s transformation is more challenging as a public company.”

Margins and earnings will worsen in the short term as Dell adapts to new trends such as cloud computing, expands sales coverage, and competes in developing countries, he said. That would probably lead to further declines in Dell’s share price, which would in turn dim customers’ view of the company and make it harder to keep staff, he said.

Binding Offer

“I founded the company and I will continue, as I have for the last 29 years, to try to make Dell the best company I can,” Dell said.

The Silver Lake-Dell bid is the only binding and fully financed offer the company received in the sale process begun in August, and no one else has been able to reach or beat that price, he said.

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 to offer investors $12 a share in cash or additional Dell stock while letting them retain stakes in a public company. This week he offered to help finance the last $14- a-share buyback proposal, and Jefferies Group LLC is willing to make $1.6 billion available for it, according to a person familiar with the matter.

Southeastern Support

Southeastern, one of the largest Dell shareholders, is supporting Icahn in his effort to scuttle the Silver Lake-led transaction. The firm sold Icahn about 72 million shares as he plans a proxy battle to install his own slate of directors in the event that the special committee concluded that his proposal isn’t superior.

All his offers so far were non-binding and weren’t fully financed. Dell’s special committee of the board urged last month shareholders to vote for founder Michael Dell’s buyout at a meeting set for July 18. After contacting potential strategic and financial buyers during a “go-shop” period, Michael Dell’s offer “is the best alternative available -- in a challenging business environment it offers certainty and a very material premium,” the board’s committee concluded in its May 31 filing.

The vote on the deal requires approval by a majority of shareholders, excluding Michael Dell’s 15.6 percent stake.

Before it's here, it's on the Bloomberg Terminal.