How Serious Is Carl Icahn About Recapitalizing Dell?
With 16 days yet to go before shareholders cast their votes on whether to let Michael Dell and Silver Lake take the computer company Dell private in a $24.4 billion leveraged buyout, the narrative has reached the weird phase where one is tempted to throw up one’s hands and wonder what it’s all for.
Consider this analysis by Reuters of a 197-page filing with the U.S. Securities and Exchange Commission laying out the terms under which the activist investor has raised $5.2 billion to fund the recapitalization he has proposed as an alternative to the buyout.
Of the $5.2 billion, Icahn and his affiliates have put up $3.4 billion, with $1.6 billion more from investment bank Jeffries and Co. An additional $179 million comes from 14 other parties, including pension funds and institutional investors with names like the Public Employees Retirement Association of New Mexico and the Manulife Floating Rate Income Fund. It’s a relatively short list, Reuters said, suggesting that Icahn had trouble attracting interest, but on the other hand, there are signs he didn’t want much participation from third parties in the first place. Confusing? Yup.
Here’s another thing: Icahn doesn’t get the funding unless Dell shareholders elect the full slate of 12 director candidates he and his partner, Southeastern Asset Management, nominated on May 13. Without that the funding is “unlikely to take place.”
Here’s a bit from the filing (I’ve made the key language bold):
Notwithstanding the foregoing or any other provision in any Debt Financing Letter, unless otherwise agreed to in writing by an Initial Lender with respect to itself (and not with respect to any other Initial Lender), each Initial Lender’s obligation under the Debt Financing Letters, including any obligation to fund its Commitments, close the Facilities and otherwise comply with its obligations under the Debt Financing Letters, is also conditioned on (i) the election or appointment to the Board of Directors of the Company of all of the Icahn Nominees (as defined in Amendment No. 1 to the Schedule 13D filed by the Icahn Funds on May 13, 2013) and all of the Southeastern Nominees (as defined in Amendment No. 5 to the Schedule 13D filed by SAM on May 13, 2013), and (ii) such Icahn Nominees and Southeastern Nominees being installed as, and constituting, the entire Board of Directors of the Company.
If everyone with a reasonable mind agrees that it’s unlikely that the full Icahn-Southeastern slate would be elected, then it’s clear there won’t be sufficient financing available to fund the recapitalization plan in the first place, even if a majority of shareholders vote in favor of it. Which raises the question: Why set the bar so high as to make the recapitalization plan all but impossible to carry out?
This makes it hard to conclude that Icahn is serious about recapitalizing Dell at all. It’s much easier to conclude that his ultimate goal — now that he’s Dell’s second-largest shareholder — is to force CEO Michael Dell and Silver Lake to raise their bid above $13.65 a share.