Billionaire investor Carl Icahn has confirmed that he is a "substantial holder" of Dell shares and told the company's board of directors to anticipate "years of litigation" should it continue with its proposed leveraged buyout of $US13.65 per share.
In a letter to the board, Icahn, chairman of Icahn Enterprises, proposed that Dell immediately declare and pay a $US9 per share special dividend from available cash, existing commercial and consumer receivables and new debt.
"We believe that such a transaction is superior to the Going Private Transaction because we value the proforma 'stub' at $US13.81 per share using a discounted cash flow valuation methodology based on a consensus of analyst forecasts. The 'stub' value of $US13.81 combined with our proposed $US9 special dividend gives Dell shareholders a total value of $US22.81 per share, representing a 67 percent premium to the $13.65 per share price proposed in the Going Private Transaction. We have spent a great deal of time and effort in determining the $US22.81 per share value and would be pleased to meet with you to share our analysis and to understand why you disagree, if you do," Icahn wrote in the letter to Dell's board.
Icahn also threatened a proxy fight and urged the board to adopt his proposal if the buyout is voted down by a majority of Dell shareholders.
Reports first surfaced Wednesday that Icahn had purchased up to 6 percent of Dell's stock, about 100 million shares, and that he opposed the proposed buyout. Dell's stock closed Wednesday at $US14.32, up 25 cents, or 1.8 percent. It marked the highest close for Dell's stock since May 22, 2012.
Icahn is expected to join other large investors, including Southeastern Asset Management, in opposition to the deal, worth about $US24.4 billion with Silver Lake Partners and other financing partners. Dell has until March 22 to entertain other offers during the mandatory "go-shop" period.
Meanwhile, Bloomberg reported Wednesday that Lenovo and Hewlett-Packard, as well as global investment firm Blackstone Group, have all taken advantage of the go-shop period to peek into Dell's financial books.
If Dell doesn't accept Icahn's proposal, he wants to elect a new board of directors, he wrote.
"We then intend to run a slate of directors that, if elected, will implement our proposal for a leveraged recapitalization and $9 per share dividend at Dell," Icahn wrote. "In that way shareholders will have a real choice between the Going Private Transaction and our proposal."
Icahn Enterprises would pledge a $US2 billion bridge loan and Icahn himself would provide a $US3.25 billion bridge loan to Dell, each "on commercially reasonable terms," if bridge financing becomes necessary, he wrote.
"Your fiduciary duties as directors require you to call the annual meeting as contemplated above in order to provide shareholders with a true alternative to the Going Private Transaction," Icahn wrote.
This year's annual board meeting would be expected to be held in June or July, according to Icahn.
"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," Icahn wrote.
"You have the opportunity to avoid this situation by following the fair and reasonable path set forth in this letter," Icahn wrote. "We believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright. We see no reason that the future value of Dell should not accrue to ALL the existing Dell shareholders -- not just Michael Dell."