Southeastern and Carl Icahn's Ongoing Battle with Michael Dell
On July 18 shareholders of Dell will vote on whether or not to take the company private. The company would go private under Michael Dell (the company’s CEO and founder and the majority shareholder of the company) and Silver Lake Partners funding, but Mason Hawkins’ Southeastern Asset Management alongside with Carl Icahn are strongly protesting this deal by claiming that it undervalues Dell immensely. Michael Dell has been trying his hardest to take the company private in order to pull it out of the negative spotlight, but activist investor and Guru Carl Icahn thinks the CEO is trying to get the company back cheaply and at a disadvantage to its stockholders. Recently, the company has been fading into the back of the market as it has continued to miss its quarterly earnings targets as well as Wall Street’s expectations for the company.
According to a recent SEC filing, the pursuit of taking Dell private began in 2010.
In Jan. 2013 the relationship between Southeastern Asset Management and Dell negatively intensified. Southeastern and Dell began discussing different potential transactions and directions in which the company could go. Southeastern indicated that it had read reports of a potential going private transaction that was in the range of $14 to $15 per share. To which Southeastern indicated that it would contest any deal at that valuation if it didn’t offer existing stockholders a choice to roll over at least a portion of their equity interests in Dell. At this point Southeastern requested that Dell offer the firm information about any proposed going private or other material transactions, which was declined by Dell.
On Feb. 5, 2013, Dell announced its plan to go private at $13.65 per share. Dell’s website reports the following:
Under the terms of the agreement, Dell stockholders will receive $13.65 in cash for each share of Dell common stock they hold, in a transaction valued at approximately $24.4 billion. The price represents a premium of 25 percent over Dell’s closing share price of $10.88 on Jan. 11, 2013, the last trading day before rumors of a possible going-private transaction were first published; and a premium of approximately 37 percent over the average closing share price during the previous 90 calendar days ending Jan. 11, 2013. The buyers will acquire for cash all of the outstanding shares of Dell not held by Mr. Dell and parties related to him.
On Feb. 8, Southeastern issued a letter to the Dell Board essentially expressing their displeasure in the valuation and the terms of the deal they were proposing. The letter also indicated that the firm would vote against the deal, while also considering a proxy fight and litigation claims.
In early March, Carl Icahn entered the equation. Both Icahn and Southeastern issued letters to the Dell Board reemphasizing their opposition to the deal to go private. Both parties entered into confidentiality agreements with Dell to find out more information and to discuss alternative plans.
On March 22, Icahn delivered a letter to the board that included an acquisition proposal.
On May 9, Southeastern and Icahn jointly sent a letter to the Dell Board disclosing that the two parties had formed a group in order to promote certain proposals related to Dell. Among these proposals was one that stated that Dell stockholders would maintain their equity position in the company and would also be awarded the opportunity to receive a distribution of $12 per share in either cash or stock.
On May 10, Icahn disclosed that he owns 4.52% of the company’s common stock.
On May 15, Longleaf Partners Fund, Southeastern Managements’ largest client, exercised 25 million Dec. 2015 call options with certain counterparties. This move gave Southeastern the right to exercise voting authority over the underlying securities.
On May 17, Southeastern disclosed that it had become a member of a 10% ownership with Icahn.
On May 20, Icahn filed his Form 3 disclosing that he had become a member of the 10% ownership with Southeastern. Later that day, the Dell Special Committee sent a letter to both Southeastern and Icahn essentially stating that the special committee was not allowed to provide the two parties with the requests for information that they had made unless the alternative transaction that they had proposed could “reasonably be expected to result in a Superior Proposal” as defined by the merger agreement.
Most recently on Jun 18, Icahn proposed (in an open letter) to Dell stockholders, that Dell should engage in a tender offer to repurchase the company’s common stock. Icahn also stated that he would attempt to beat the current go-private proposal, and that he would then elect a new Dell board during the 2013 annual meeting. His candidates would clearly not include the company’s CEO and Founder, Michael Dell.
On the 18th, Icahn also disclosed that he had purchased over 72 million shares of Dell stock from Southeastern Asset Management, and alongside that purchase, Southeastern reaffirmed that they would be voting against the current Dell deal. Together, Icahn and Southeastern own nearly 13% of Dell shares.
The Special Committee released a response saying:
Mr. Icahn’s concept is not, in its present state, a transaction that the Special Committee could endorse and execute – there is neither financing, nor any commitment from any party to participate, nor any remedy for the company and its shareholders if the transaction is not consummated.
With both Michael Dell and Carl Icahn fighting tooth and nail for this company with no signs of giving up, we’ll have to wait and see what happens at the July 18 shareholder vote.
You can check out Carl Icahn’s current portfolio here. Also check out Carl Icahn’s most recent buy of Dell shares.