In a move that potentially staves off a battle over Dell Inc.'s (Nasdaq: DELL) $24.4 billion proposed deal to go private, activist investor Carl Icahn said today (Monday) he signed a confidentiality agreement with the personal computer giant.
Icahn's firm issued a short statement saying it "looks forward" to reviewing Dell's confidential financial info. The company hopes the move will keep Icahn from speaking out against Dell's planned sale.
In a letter to Dell last week, Icahn warned that Dell's insistence in moving forward with the $24.4 billion, $13.65 a share buyout would result in a costly, lengthy legal battle.
Icahn, who according to CNBC has amassed a 6% stake - or roughly 100 million shares - in Dell, opposes the proposed buyout of the Texas-based company that is being orchestrated by founder Michael Dell and Silver Lake Partners.
"The Going Private Transaction is a related party transaction with the largest shareholder of the company and advantaging existing management as well, and as such it will be a subject to intense judicial review and potential challenges by shareholder and strike suitors," Icahn wrote.
"But you have the opportunity to avoid this situation by following the fair and reasonable path set forth in the letter," Icahn continued.
What Icahn suggested was for Dell to pay a special dividend of $9 per share. Icahn said he was even prepared to provide $2 billion via a bridge loan from his Icahn Enterprises LP (Nasdaq: IEP), plus a $3.25 billion personal loan for Dell's recapitalization.
In addition to the special dividend, Icahn said his assessment of Dell's ongoing business values the company at $22.81, some 67% better than Michael Dell's (who controls 15.7%) bid.
Critics of Dell's move to go private support Icahn's take on the deal.
"It's a no-brainer," Richard Pzena, founder and co-chief investment officer at Pzena Investment, told Barron's. "Icahn's involvement is a great thing for Dell shareholders."
Andrew Bary, writing for Forbes, said over the weekend: "This is another clever move by Icahn, since one of the main arguments by the Michael Dell camp is that if the $13.65 buyout price is voted down, Dell shares will fall back toward $10, where they traded in late 2012. That doomsday scenario doesn't look realistic, given Dell's strong balance sheet, with about $3.50 a share of net cash, and sizable earnings power. If Icahn succeeds in pairing his proposal with the buyout vote, Dell shareholders will know that a lucrative counterproposal will be implemented, should they vote down the Michael Dell buyout."
The Dell committee said in a statement Monday, "The special committee welcomes Carl Icahn and all other interested parties to participate in the "go-shop' process. Our goal is to determine if there are alternative transactions that could be superior to the going-private transaction and to secure the best results for Dell's public shareholders-whether that is the announced transaction or an alternative."
Another critic of the Dell deal is the company's largest outside investor Southeastern Asset Management Inc, which owns 8.4%. Southeastern says the stock is worth closer to $24 a share. Instead of using its cash and raising debt to go private, Dell could pay a $12-per-share-dividend, Southeastern says.
Shares of Dell rose almost 1% Monday to $14.33 in early trading, and is up 41.5% so far this year.
The Icahn Effect
Icahn's involvement is often bullish for a stock - known as the "Icahn Effect" or "Icahn Lift."
According to a Harvard Law School Forum study in 2011, when Icahn takes a position in a company, its stock enjoys at least a 10% gain.
The seasoned investor usually pushes for the underperforming companies he has taken a substantial position in to sell, engage in a merger, reward shareholders with cash, or change management. His presence can be intimidating and effective.
"Back in the 1980s, corporate raiderCarl Icahnwas routinely vilified by CEOs and worshipped (most of the time) by investors. The mere mention of his name in association with a specific company was usually good for a 15% or 20% pop in that company's stock price," Money Morning Executive Editor William Patalon III wrote last year. "Apparently he's no longer a "corporate raider.' In the careful, politically correct climate of the present, Icahn is now referred to as an "activist investor." Call him what you want ... but the bottom line is that the Icahn name still has a King Midas-like cachet."
Savvy Icahn stole the spotlight earlier this year in an on-air CNBC showdown with Bill Ackman of Pershing Square Capital Management LP over Herbalife Ltd. (NYSE: HLF). Ackman called the nutritional supplement company a Ponzi scheme and has shorted one million dollars' worth of shares.
Icahn has a 25% stake in Herbalife, and his two board nominees were just approved. Since the duo traded heated jabs, shares of Herbalife have risen more than 12%.
In January, Icahn was instrumental in the ultimate ouster of controversial Chesapeake Energy Corp.'s (NYSE: CHK) CEO Aubrey McClendon. The stock is up 29% so far this year.
In January 2012, Icahn got his wish when Motorola Solutions (NYSE: MSI) announced it would repurchase $1.17 billion of stock from Icahn, as part of a $3 billion share buyback. He was also successful in pushing for the sale of Motorola Mobility to Google Inc. (Nasdaq: GOOG) for $12.6 billion in August 2012. Exact figures aren't available, but Icahn's windfall is said to have been significant.
While his name can attract investor attention, the deals don't always work in his favor.
Such was the case in Icahn's recent failed efforts to force a merger between commercial truck and engine manufactures Oshkosh Corp. (NYSE: OSK) and Navistar International Corp (NYSE: NAV). Icahn's push failed to garner much support from either company's shareholders. He quietly backed away in December 2012.
Lack of shareholder support also forced Icahn to abandon hostile takeovers, sales or management shakeups at Commercial Metals Co. (NYSE: CMC), Forest Laboratories Inc. (NYSE: FRX) Lions Gate Entertainment Corp (NYSE: LGF) and Clorox Corp. (NYSE: CLX).
The 77-year-old self-made billionaire made his fortune through leveraged buyouts. He sits at No. 26 on Fortune Magazine's 2013 list of global billionaires, with a net worth of $20 billion. In the U.S., he is No. 15.
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