Carl Ichan Bows Out Of Dell’s Privatization War

After months of fighting, activist investor Carl Ichan has ended his battle against Dell‘s (NASDAQ:DELL) proposed sale to its founder, Michael Dell. The announcement will likely put an end to a battle that has raged since February between Michael Dell and private equity firm Silver Lake Partners on one side and stockholders like Icahn and Southeastern Asset Management on the other who wanted a higher price for their stock.

In a letter to the shareholders on Monday, Mr. Ichan wrote that it would be impossible to win the battle after the Michael Dell led consortium had boosted the offer price, added a special dividend and changed the voting rules. ^[1] However, he still planned to vote against the deal and seek an appraisal of his holdings by a Delaware court. Additionally, Southeastern Asset also continues to oppose the buyout, but won’t take further action to block it. We expect that the privatization deal that hands over the company reins to Mr. Dell and Silver Lake will be completed on Thursday, September 12, when Dell shareholders head to a vote on it. In the recent months, the meeting had been postponed three times as Michael Dell and Silver Lake struggled to round up the needed votes to support the deal.

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The Deal

The consortium led by CEO Michael Dell proposes to take the company private in a $25 billion deal that values each share of the company at $13.75, a 25% premium over Dell’s price on January 11, 2013. The deal also includes a 13 cent per share special dividend. The deal will be financed through a leverage buyout in which 90% of the funding will come from debt taken against Dell’s assets and cash on books while the remaining 10% would be pooled in by the consortium as equity. The consortium proposes to transform Dell into an end-to-end information technology solutions provider by focusing on converged infrastructure solutions, cloud solutions, application development and consulting. It also states that executing the new strategy would require at least three to five years and would require additional investments that could weaken earnings for two or more years. ((14A, August 14th 2013, www.sec.gov))

While Mr. Icahn and Southeastern Asset Management have repeatedly argued that the $25 billion proposal by Michael Dell and Silver Lake to take the company private undervalues the company, the special committee of Dell maintained the buyout represented the best option for Dell shareholders. In our article published earlier, we had argued that the shareholders will benefit from Michael Dell-Silver Lake’s proposal, as it not only shifts the restructuring risk to the buying consortium, but also frees up cash that can be invested elsewhere for higher returns. We will be closely following the shareholders meeting on September 12, to keep abreast with shareholders’ decision.

We currently have a $13.60 price estimate for Dell, which is in line with the current market price.

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1. Letter to the Shareholders, September 9 013, www.sec.gov [↩]