Dell Committee Says Icahn Proposal Falls Short by $4 Billion
A special committee of Dell’s board of directors says an offer from the activist investor Carl Icahn suffers from what it calls a “liquidity gap” amounting to nearly $4 billion.
The recapitalization plan proposed by Icahn and Southeastern Asset Management, Dell’s largest outside shareholder, made last month, proposes to use Dell’s existing pile of cash plus some new debt to pay shareholders a $12-per-share special dividend. It would also contain a public “stub” that would allow existing shareholders to maintain a stake in the new company.
Dell’s special committee estimated the liquidity gap based on debt maturity dates, a more negative outlook in Dell’s current business prospects than the Icahn camp assumes, and termination fees. The committee argues that all of these could reduce the actual dividend Icahn proposes to $9.35 a share.
The committee illustrated its shortfall estimate on slide 41 of its presentation deck. I took a screen grab so you can see it:
The committee reiterated its support of the $24.4 billion proposal from CEO Michael Dell and the private equity firm Silver Lake Partners, calling it the best option available to the company. It says in the deck that the $13.65-per-share buyout price amounts to a premium of 5.4 times Dell’s estimated EBITDA for the 2014 fiscal year, and “significantly exceeds” Dell’s multiples during the prior year.
The pace of the buyout battle has quickened in recent days, after Dell filed its final definitive proxy last week, while the Icahn-Southeastern camp published a letter to shareholders, urging them not to vote on the proposal at all. A non-vote is essentially the same as a no-vote.
Girding for a serious proxy fight, Icahn and Southeastern, who together control about 13 percent of Dell’s outstanding shares, proposed a slate of Dell directors on May 13. Icahn has also said in televised comments on CNBC that if he gets control of the company, founding CEO Michael Dell would be pushed out.
The Dell-Silver Lake proposal emerged in February, after five months of painstaking negotiations with Dell’s special committee led by businessman Alex Mandl. During that process, Dell and Silver Lake raised their bid six times, from $11.22 to the final proposed price of $13.65.
The special committee’s full slide deck is below:
