(Corrects paragraph 4 to say Dr. Anthony Michael Sabino is a
professor at St. John's University, not John's University)
* Icahn proposes leveraged recapitalization, special
* Asks board to implement his proposal to "avoid proxy
* If board refuses, Icahn says will run slate of directors
By Sruthi Ramakrishnan
March 7 Activist investor Carl Icahn urged Dell
Inc to pay out $15.7 billion in a special dividend,
joining a growing chorus of opposition to founder Michael Dell's
plan to take the world's No. 3 personal computer maker private.
Icahn wrote to Dell's board to propose a leveraged
recapitalization and said that the $24.4 billion go-private deal
"substantially undervalues the company".
Icahn's arrival on the scene typically puts companies - and
their boards - on guard, because the outspoken billionaire has a
reputation for aggressively demanding changes by building up
"When Carl Icahn talks, people need to listen - especially,
in this case, the Dell board," said Dr. Anthony Michael Sabino,
a professor in the law department at St. John's University's
Peter J. Tobin College of Business.
The likelihood of alternative proposals prompting Dell to
sweeten his offer has increased since a handful of major
shareholders have spoken out against the deal, analysts said.
"Recent events have raised the level of scrutiny on the
situation, which could end up increasing the take-private price,
Wells Fargo analyst Maynard Um wrote in a note.
Michael Dell has partnered with private equity house Silver
Lake and Microsoft Corp to offer $13.65 a share to buy
out the company he created in a college dorm room in 1984.
But shareholders representing almost 14 percent of Dell
shares, led by Southeastern Asset Management with a stake of
more than 8 percent including options, have said they will vote
against the proposed buyout.
Southeastern, run by activist investor Mason Hawkins, has
said Dell could borrow money to make a major share repurchase or
break up the company and sell units separately.
T. Rowe Price has also spoken out against the deal.
Icahn, in a letter dated March 5 and published on Thursday
by the Special Committee of the Board of Directors of Dell, said
his interests held a substantial stake in Dell. He did not
disclose his exact shareholding.
CNBC, citing unnamed sources, reported on Wednesday that
Icahn had accumulated about 6 percent of Dell's shares.
That would make him the third-largest
shareholder after Southeastern and Michael Dell himself.
Icahn proposed a special dividend of $9 per share, which
would include $4.26 per share derived from $5.25 billion in new
He said the special dividend, when added to a "stub" value
of $13.81 per share, would deliver a total value of $22.81 per
share - a 67 percent premium to the go-private deal.
Dell shares were largely flat at $14.28 on the Nasdaq on
Thursday. They have risen 8 percent since trading closed on Feb.
4, the day before Dell announced its plan to go private.
'VALUE FOR ALL'
Dell said Icahn had asked its board to commit to his
proposal to "avoid a proxy fight".
"We see no reason that the future value of Dell should not
accrue to ALL the existing Dell shareholders - not just Michael
Dell," Icahn wrote in the letter.
Jefferies & Co analyst Peter Misek said most investors were
likely to favor an increased bid by Dell. But a rival offer, he
said, was unlikely.
"Icahn would likely be satisfied with a raised bid to $15,
which we think would be higher than the potential stock price
realized from a leveraged recap," Misek wrote in a note.
"While a break-up of Dell would increase the probability of
a strategic investor buying a portion of the business, we still
see this as unlikely due to the size of the PC business and
Michael Dell's desire to lead a shift toward enterprise
Dell said it would welcome Icahn's participation in a
"go-shop" process to find alternative proposals, which the
company announced on Wednesday.
Icahn, meanwhile, said he would propose directors to
implement his plans if his ideas were not accepted. He requested
that Dell's board combine the vote on the go-private transaction
with an annual meeting to elect a new board of directors.
Dell has said it would hold the meeting for the vote on the
go-private deal in June or early July.
If the board were to decline to combine the vote, Icahn said
he anticipated "years of litigation" will follow.
Icahn Enterprises LP would provide a $2 billion
bridge loan for the "prompt payment" of the dividend, if his
slate of directors was elected, Icahn said in the letter.
Icahn himself would provide an additional $3.25 billion
bridge loan to Dell if necessary, he wrote.
"This is far from over," said Sabino. "Expect a lot of
pulling and tugging between multiple rivals here, with Dell as
(Editing by Supriya Kurane and Robin Paxton)