Icahn Adds Perk to Dell Offer in Latest Buyout Challenge

Billionaire Carl Icahn made a 11th-hour effort to derail Michael Dell’s $24.4 billion buyout bid for Dell Inc., offering shareholders a chance to own a bigger stake in the personal-computer maker.

Shareholders vote July 18 at Dell’s Round Rock, Texas, headquarters on the $13.65-a-share offer by Dell and Silver Lake Management LLC. Icahn, who holds 8.7 percent of Dell, is adding a warrant to his $14-a-share rival proposal that holders could exchange for additional stock, he said yesterday.

Icahn’s latest move is his fourth attempt to scuttle the chief executive officer’s efforts to turn the manufacturer he founded into a private business. Icahn has said that Dell can still compete in the PC market as a public company. Still, the proposal remains risky because the benefit depends on shares surging about 50 percent higher than their current price, said Jeff Fidacaro, an analyst at Monness Crespi Hardt & Co.

“This deal is not a home run,” said Fidacaro, who rates the shares neutral. “Carl’s got a fight in front of him.”

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 surfaced. The shares fell less than 1 percent to $13.32 at yesterday’s close in New York.

Icahn said his latest proposal’s value to shareholders would be about $15.50 to $18 a share.

Key Endorsements

Michael Dell is seeking to take the company he founded in 1984 into a contender in tablets and cloud computing. His proposal won key endorsements this week from Institutional Shareholder Services Inc. and two other influential proxy advisory firms, and it also has the backing of the special committee of Dell’s board that’s evaluating potential transactions on the company’s behalf.

“ISS has done a great disservice to stockholders by making a recommendation focused on the criticism” that shareholders can’t immediately reap the benefits of Icahn’s offer, he said in the letter. “We continue to view our proposal, particularly with the addition of the warrant, as economically better for stockholders.”

In response, ISS said in a report that it still sees risks to Icahn’s proposal with warrants. The advisory firm repeated its recommendation that shareholders should vote for the Silver Lake-led offer.

The board’s special committee also rejected Icahn’s latest proposal, saying that it’s still “highly speculative.”

Icahn’s Offers

The warrants act like equity options and are common in takeovers as a way of enhancing value. Icahn is offering one transferable warrant for every four shares bought in the self-tender offer, according to the letter. The warrant would permit the investors to buy Dell shares for $20 for as long as seven years, the document shows. Dell last traded above $20 in 2008.

David Frink, a spokesman for Dell, declined to comment on Icahn’s most recent proposal.

Icahn said on July 10 that he was preparing to exercise appraisal rights that are available to shareholders of companies incorporated in Delaware and urged other shareholders to do the same. By seeking an appraisal, investors can seek a higher price for their shares in court.

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.

“Obviously, Carl Icahn has a phenomenal track record and he’s trying to extract a little bit more money out of the Dell-Silver Lake party,” Brian Marshall, an analyst at ISI Group, said in an interview with Bloomberg Television’s “Market Makers” today. “He is unlikely to get any more out of it, and shareholders should take the other deal.”

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