Late yesterday, it was reported that activist billionaire investor Carl Icahn has taken a 6% stake in shares of Dell (click ticker for report: ). Icahn has confirmed he has a position, and he sent Dell a letter describing what he thinks the company should do. Instead of going private, he wants Dell to execute a recapitalization, which includes $5.25 billion in new debt that will be used to leverage the company and pay out a dividend of $9 per share.
Icahn Enterprises could provide the entire $5.25 billion in bridge financing. He also believes the $9 per share could be added to the existing price, unlocking additional value for shareholders. Icahn voiced his opinion on why the company should accept his offer, saying:
“We see no reason that the future value of Dell should not accrue to ALL the existing Dell shareholders – not just Michael Dell.”
We believe he’s somewhat correct in the sense that Dell easily could have gone through a public recap, but market participants had kept Dell’s share price depressed for months, and before the buyout offer, there was relatively little confidence in management. Michael Dell got a great bargain if he can help the company mitigate the shift away from PCs while maintaining profitability. Further, when a CEO has so much confidence as to bet most of his net worth on his company, it seems to us there’s a good chance he has some edge and justification for the deal.
It’s hard to tell just how serious Icahn is (especially when Ackman isn’t on the other side), but he implored management to take the consideration seriously, stating:
“If you fail to agree promptly to combine the vote on the Going Private Transaction with the vote on the annual meeting, we anticipate years of litigation will follow challenging the transaction and the actions of those directors that participated in it.”
We’re not sure if Icahn will be able to get the votes needed for his proposal, but there are plenty of shareholders that were unhappy with Dell’s offer, and we would not be surprised to see additional interested activists take positions in Dell to help pressure management. Given the fact that shares have steadily risen above the deal price since it was announced, we believe plenty of people are confident Michael Dell will have to boost his offer (or another player will come into play with a higher offer).
Regardless, it doesn’t appear to us that the Dell saga is anywhere near over. While Icahn may seem like he’s coming in for a quick buck, he’s a powerful activist with the ability to alter the outcome of the situation. Though we’re not interested in participating in Dell, the firm could be interesting for an arbitrageur (as downside risk looks minimal at this point).