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Bringing Icahn Into Dell's Henhouse Could Be Foxy Move

Bringing Icahn Into Dell's Henhouse Could Be Foxy Move

Carl Icahn has been hovering around Dell's proposed leverage buyout with a monkey wrench in hand, but the company is gambling that a look at its books will alter his disposition. Instead of going to the barricades over the deal, it's conceivable that Icahn could make an about-face and make the company's case for privatization to other investors.

By Erika Morphy E-Commerce Times ECT News Network
03/11/13 3:10 PM PT

Carl Icahn has been pushing back against Dell's proposal to go private in a US$24.4 billion deal. Dell finally gave way -- a little -- and is allowing Icahn to examine the company's confidential information.

Icahn Enterprises made the announcement in a brief, two-sentence release made public over the weekend.

The 'Undervalued' Argument

Dell has been battling shareholders about the proposed leveraged buyout almost since it was unveiled in February. Under the terms, Dell stockholders would receive $13.65 in cash for each share of Dell common stock they hold from company founder and CEO Michael Dell and investment firm Silver Lake Partners. Microsoft is also participating with a $2 billion loan.

Shortly after the proposal was brought to light, some shareholders began grumbling. The common theme was that Dell was undervaluing the company "grossly," as a Southeastern Asset Management filing with the Securities and Exchange Commission termed it. Other investors have come out against the buyout for similar reasons.

The Icahn Factor

None of them command the spotlight the way Icahn does, however, given his recurring role as activist shareholder at major public companies. Icahn also sees the buyout as undervaluing Dell. His proposed solution is for Dell to issue a special dividend of $9 per share.

"Icahn brings decades of experience in IPO and tough-fought acquisitions," David Cadden, a business professor at Quinnipiac University, told the E-Commerce Times.

The other shareholders convinced Dell is worth more couldn't have a better standard-bearer, he said. "If you want a strong right arm in such fights, then Icahn is an excellent choice."

That said, Dell's management would not be opening the company's books to Icahn if they didn't think the data might persuade him to come around to their position, Cadden continued. It's possible Icahn could wind up seeing the wisdom of a leveraged buyout.

"Allowing him access to the books will enable him to give a realistic assessment of success," Cadden said. "Icahn doesn't always win these fights, but Dell may have made a smart bet in bringing him into the team."

To be sure, the financial data about Dell available to the public is not especially heartening. In its fourth quarter earnings released at the end of last month, Dell reported net income of $530 million, or 30 cents per share, a 31 percent drop from the same time a year ago. Its revenue for its most recent quarter totaled $14.3 billion, down 11 percent from a year earlier. Still, analysts had been expecting worse from the struggling PC maker.


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