Battle for Dell intensifies

Carl Icahn and Southeastern make a rival offer, and they're not pulling any punches.

By Forbes Digital May 10, 2013 11:50AM

Top of a Dell laptop Bobby Yip Newscom ReutersBy Abram Brown

Billionaire activist  investor Carl Icahn and Southeastern Asset Management this morning announced their own offer for Dell (DELL), the latest turn in the battle between two of Dell's largest investors and founder Michael Dell.

Icahn and Southeastern want to scuttle Dell's plans to buy out the company, a deal they argue grossly undervalues it. "We are often cynical about corporate boards, but this board has brought that cynicism to new heights," Icahn and Southeastern wrote in a letter to Dell's board, included in a new SEC filing. "This company has suffered long enough from very wrongheaded decisions made by the board and its management."

The proposal from Icahn and Southeastern offers $12 in cash or in additional shares. This would leave part of the company public, allowing interested investors to stay involved in the company. Unlike this bid, Michael Dell and private-equity shop Silver Lake Partners offered $13.65 a share, a total of $24.4 billion, to take the entire company public–paying a slim premium to existing shareholders.

Financing for the Icahn-Southeastern bid will come from cash and a $5.2 billion bridge loan. They didn't offer any specifics on who will provide the credit but took the opportunity to point out that their offer wouldn't pile on the debt as much as Dell-Silver Lake would. They estimate that bid would slop on $16 billion (a non-too-insubstantial amount for a company already loaded with $9 billion in debt and a debt/equity ratio of 0.5 times).

Shares of Dell rose 0.8% to $13.44 in late morning trading. That the stock isn't trading at the proposed buyout price suggests investors believe the mounting pressure against the thinly priced deal will force Dell and Silver Lake to make a more appetizing bid.

Icahn and Southeastern in the letter pledge to use every tool possible to derail Dell's plain (read: see you in court). They also said they would nominate a full slate of directors -- 12 new board members–for the next shareholder vote.

This is the second time in a year that Icahn and Southeastern teamed up to attempt to transform an ailing business. The pair joined to reshape Chesapeake Energy's (CHK) board, replacing five directors and eventually facilitating the ousting of CEO Aubrey McClendon. Beyond that, both are experienced activists, with Icahn's recent battles including Netflix (NFLX) and Clorox (CLX) and Southeastern's including Olympus and Vulcan Materials (VMC).

A Southeastern spokesman declined to comment on the letter, which is a real treat to read. The strongly worded letter shows just how angry the investors are -- Southeastern presumably the angriest, given its past staunch support for Dell and an estimated cost-basis of more than $20 a share for its investment in the PC maker.

Here are some of the better lines from the letter:
We want this Board to hear from both Icahn and Southeastern loud and clear that it is insulting to shareholders’ intelligence for the Board to tell them that this Board only has the best interests of shareholders at heart
You not only sanctioned Michael Dell’s offer, which amazingly allows him to purchase the company from shareholders with their own money but, to add insult to injury, you have agreed to give Mr. Dell a break-up fee of up to $450 million.
This company has suffered long enough from very wrong-headed decisions made by the Board and its management. 
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