Billionaire Icahn demands Dell pay US$16b

Activist investor Carl Icahn is demanding Dell Inc pay out US$15.7 billion in special dividends, joining a growing chorus of opposition to founder Michael Dell’s plan to take the world’s No. 3 personal computer (PC) maker private.

The billionaire investor, whose arrival on the scene typically puts companies on guard, wants the PC maker to pay US$9 a share in dividends immediately from its own cash and from raising new debt.

Icahn, who has a reputation for demanding aggressive changes after amassing stakes in companies, argued in a letter to the company’s board published on Thursday that Michael Dell’s and Silver Lake’s proposed US$24.4 billion buyout short-changed shareholders, undervalued the company and benefited mainly the company co-founder himself.

"We see no reason that the future value of Dell should not accrue to all the existing Dell shareholders - not just Michael Dell," Icahn wrote in the letter, which Dell disclosed in a filing.

Icahn’s proposed special dividend of US$9 per share would include US$4.26 a share derived from US$5.25 billion in new debt.

He argued that, combined with a "stub" value of US$13.81 per share that his firm calculated based on discounted cash flow, such a move would deliver shareholders a total value of US$22.81 per share.

That would be a 67 per cent premium to the US$13.65 buyout price put forward by Michael Dell in partnership with private equity house Silver Lake and Microsoft Corp.

In his letter, Icahn asked Dell’s board to commit to his proposal to "avoid a proxy fight." He also wants Dell to combine an upcoming special shareholder vote on the buyout deal with its regular annual general meeting, when Icahn said he intended to put forward a slate of his own directors for election to the board.

"If you fail to agree promptly to combine the vote ..., we anticipate years of litigation will follow challenging the transaction and the actions of the directors that participated in it," Icahn said in the letter.

To speed up the payment of a special dividend, Icahn himself pledged to provide a US$3.25 billion bridge loan to Dell, if necessary.

Icahn joins other major investors opposed to the deal.

Excluding the activist investor, who has not disclosed his stake, shareholders representing almost 18 per cent of Dell shares, led by Southeastern Asset Management with a stake of more than 8 per cent including options, say they will vote against the buyout.

The likelihood of alternative proposals prompting Dell to sweeten his offer has increased since a handful of major shareholders spoke out against the deal, analysts said.

"Recent events have raised the level of scrutiny on the situation, which could end up increasing the take-private price," Wells Fargo analyst Maynard Um wrote in a note.

Southeastern, run by activist investor Mason Hawkins, has said Dell could borrow money to make a major share repurchase or break up the company and sell units separately.

Icahn said only that his interests held a substantial stake in Dell. He did not disclose his exact shareholding.

CNBC, citing unnamed sources, reported on Wednesday that Icahn had accumulated about 6 per cent of Dell’s shares.

That would make him the third-largest shareholder, after Southeastern and Michael Dell himself.

Dell shares finshed 0.7 per cent lower at US$14.22 on the Nasdaq on Thursday. They had risen about 8 per cent since trading closed on February 4, the day before Dell announced its plan to go private.-- Reuters