Carl Icahn Urges Dell Shareholders to Take Buyout Gripes to Delaware Courts
Carl Icahn, the activist investor and Dell’s second-largest shareholder after its founding CEO Michael Dell, sent another letter to shareholders today urging them to invoke their right to have a judge decide how much the company is worth.
The letter follows one he released yesterday in which he first revealed his latest tactic to try to scotch the buyout proposed by Michael Dell and private equity firm Silver Lake. Icahn argued that shareholders who oppose the deal and don’t vote for it have a right under Delaware law to ask that state’s Chancery Court to determine the appropriate value of the company. As I noted earlier this week, Icahn had a setback in the Delaware courts last month when a judge ruled from the bench that Dell’s go-shop process was fair.
Icahn has argued that Dell is worth more than $13.65 a share, the price Dell and Silver Lake have proposed to pay. He has proposed to buy up to 72 percent of Dell shares at $14 a share and leave the remainder as a publicly traded stub.
Icahn called the opportunity to seek appraisal rights a “no brainer.” He said he is taking steps today to submit his shares for appraisal by the court, and is urging other shareholders who don’t support the deal to do the same, which means the matter will at least go before a judge. If the buyout is approved, they’ll get their payout, plus a chance to reap an additional reward later if the court finds the company is worth more than $13.65. He assumes the buyout would close in October, and Delaware law gives shareholders 60 days after the close of a deal to exercise their appraisal rights, which would mean December.
“In the case of Dell, a great many things can occur between now and December to make this trade profitable. For one thing, Dell may want to settle with those seeking appraisal rights,” Icahn writes. “Another possibility is that Dell paints a much rosier picture of the company’s prospects when the approximately $16 billion loans that Michael Dell/Silver Lake need are being syndicated. We believe this will make it apparent that the company is worth far more than $13.65 and that can be taken advantage of to fight for a premium well over $13.65.”
What he doesn’t say: While it’s true that a judge could decide that Dell is indeed worth more than the buyout price, that same judge could just as easily find that the company is worth less than that and throw the whole thing out. Any judge who decided that would have a pretty solid reason for doing so: Dell has made a case that without the buyout offer buoying the share price, Dell shares would be trading for a lot less than they are now. (Today they rose slightly to $13.38.) Rival Hewlett-Packard is trading at much lower multiples than Dell right now.
The move also smacks a bit of desperation. After Institutional Shareholder Services and two other proxy firms gave their stamps of approval in favor of the buyout, the momentum indeed appears to be favoring an approval. The shareholder vote is next week.
But if it’s not approved, Icahn reiterated his plan to move for a vote on his slate of directors and to proceed with his tender offer. Next Thursday’s meeting will tell the tale.